F REIGN TRADE the Export-Import Bank of China: Want to Be the Best in a Better World

APR. 2012 No. 521 Sponsored by CCPIT Since 1956 CHINA’S F REIGN TRADE The Export-Import Bank of China: Want to Be the Best in A Better World

Special report Speed Down, Quality Up

economy Manufacturing Wages are Rising

国内邮发代号：80-799 国际邮发代号：SM1581 国内刊号：CN11-1020/F Special report 国际刊号：ISSN0009-4498 2012 CPPCC & NPC http://www.ccpit.org

Policies

China to see narrowing trade surplus National Committee of the Chinese People’s Political Consultative Conference, China’s top China will maintain a trade surplus this year, although the surplus will continue political advisory body. to narrow, the Ministry of Commerce (MOC) said on Mar. 15, according to Xinhua. A professional management team for the The ratio of China’s trade surplus to its gross domestic product will continue to fund and its custodian bank have been select- fall in 2012, and China’s for- ed, according to Huang. eign trade will become more balanced, MOC spokesman China to change foreign trade Shen Danyang said at a growth pattern regular press briefing. China reported a trade A guideline to accelerate the transforma- deficit of $31.49 billion in tion of the country’s foreign trade growth February, the largest month- pattern was jointly issued on Mar. 1 by 10 Chi- ly trade deficit in more than nese government agencies, Xinhua reported. a decade. The country aims to balance its foreign Shen said the deficit trade by increasing imports and optimizing the was caused mainly by sea- mix of its import tariffs, according to the pub- sonal factors, as domestic foreign trade companies tend to increase imports after the lication on the Ministry of Commerce website. Spring Festival holiday. The guideline said favorable tariff poli- “The first two months’ trade data cannot reflect the trend for the year. The min- cies will be implemented to boost imports of istry will adopt measures to ensure stable foreign trade,” Shen said. advanced technology, equipment and com- China’s trade deficit stood at $4.15 billion during the first two months of 2012. ponents, energy and raw materials as well as people’s daily necessities. China’s new fund to encourage private investment The government will encourage domestic firms to “go overseas” and secure stable sup- China launched a new investment fund on Mar. 12 in an attempt to bring pri- plies of energy and resources abroad, it said. vate capital into the energy and infrastructure sectors, Xinhua reported. The country is also keen to assume greater The urban infrastructure facilities investment fund was selected over other pricing power in the global commodities mar- rivals and won approval from the regulatory authority because it has a background ket and better its reserve system of strategic of private capital, said Huang Mengfu, chairman of the All-China Federation of resources. Industry and Commerce, which initiated the fund. The guideline urged more efforts to in- The fund pooled 2.5 billion yuan (about $397 million) of capital for the first crease the share of developing countries in stage of its operation from state-owned enterprises such as Petro China, the coun- China’s foreign trade and push forward the try’s largest oil producer, and some private companies affiliated with the federation. strategy of introducing free-trade areas. The fund will mainly look for investment opportunities in infrastructure facili- It said the government will help export ties such as oil and gas pipeline construction, said Huang, also vice chairman of the firms to improve quality, build their own Figures

year-on-year, the Ministry of Commerce of 5.2 percent year-on-year. 1.04t (MOC) said on Mar. 15. China’s social financing hit 1.04 trillion yuan in February, up 391.2 8.3% billion yuan over the same period last 5.2% China’s economic year, the central bank announced. Chinese telecommunications growth rate is projected to giant China Mobile said its net slow further to 8.3 percent profits hit 125.9 billion in 2012 due to uncertain- 0.9% yuan (19.92 billion ties in the global economy, China attracted 7.73 billion U.S. U.S. dollars) in Standard & Poor (S&P) dollars in foreign direct investment 2011, an in- said on Mar. 14. (FDI) in February, down 0.9 percent crease

4 Quotes

brands and move up the technology and “7.5% GDP growth target not low” value-added scale so that they can foster global competitiveness. Premier Wen Jiabao was Under the guideline, China will quoted as saying by Xinhua further reform the yuan’s exchange rate on Mar. 14 that the 7.5 percent formation mechanism to make the cur- GDP growth target for 2012 is a rency more flexible. It also vows to pro- result of the government’s promote the use of the yuan in cross-border active macro-control and can trade settlement and investment. not be viewed as low. China’s GDP has reached China to regulate online 47 trillion yuan ($7.46 trillion). group buying On this basis, the growth rate of 7.5percent can not be counted China will regulate the thriving as low, not to mention the econ- online group buying market to protect omy would keep expanding at this pace, Wen told a press conference after customer interests and boost the sec- the conclusion of the annual parliamentary session. tor’s sound development, according to Indeed, the Chinese economy faces slowing trend due to impacts from a circular issued on Mar. 14, Xinhua the European debt crisis and contracting overseas demands, Wen noted. reported. Under such circumstances, to lower the growth mainly aims to facilitate The State Administration of In- economic restructuring, the premier said. dustry and Commerce (SAIC) said in the posting on its website that problems “Yuan’s exchange rate increasingly decided by like deceiving customers, selling fake market” products and artificially raising original prices are arising frequently as the in- A trade deficit in the first two months of this year, as well as its impact dustry becomes popular in China. on the exchange rate of the renminbi in the foreign exchange market, is “a “Disputes and complaints related to good thing” for China, the governor of China’s central bank was cited as online group buying have seen a sharp saying by Xinhua on Mar. 12. rise,” the administration noted. The supply-and-demand relation in the market is playing an increasing The SAIC urged local authorities role in deciding the exchange rate of the Chinese currency, Zhou Xiaochuan, to examine the qualification of online governor of the People’s Bank of China (PBOC), said at a press conference group buying providers and supervise on the sidelines of the ongoing annual sessions of the National People’s Con- them to fulfill their liabilities. gress (NPC). Local authorities should also inten- “We need to take a longer period of time to see whether China’s foreign sify their work to crack down on illegal trade will be balanced or not this year,” Zhou said. activities by service providers, it said. Figures

percent year-on-year in February, the of this year, NBS announced on Mar. 9. 13.1% National Bureau of Statistics (NBS) an- China’s national fiscal revenue rose nounced on Mar. 9. 13.1% year-on-year to 2.09 trillion yuan $16,887 (330.27 billion U.S. dollars) in the first T he p e r c a pit a GDP two months, the Ministry of Finance said 14.7% for the residents of south on Mar. 12. C h i n a’s r e t a i l China’s Guangdong province sales rose 14.7 percent is expected to reach $16,887 year-on-year to 3.37 in 2020, according to a state- 3.2 % trillion yuan (533.8 ment released by the Chinese China’s consumer price index (CPI), billion U.S. dollars) in Academy of Social Sciences a main inflation indicator, climbed 3.2 the first two months on Mar. 13.

5 Policies

China’s property market regulation to continue and a reasonable decline in home prices. China has vowed to build 36 million af- China will continue to regulate the real estate market to bring down property fordable housing units during the 2011-2015 prices to a reasonable level, Premier Wen Jiabao was quoted as saying by Xinhua at period in a bid to meet the demand of low in- the opening of the annual parliamentary session on Mar. 5. come families. In 2011, it started construction “We will strictly implement and gradually improve policies and measures for of 10 million units. discouraging speculative or investment-driven housing demand, build on progress made in regulating the real estate market,” said Wen when delivering his govern- China to strictly control new ment work report at the Fifth Session of the 11th National People’s Congress (NPC). local gov’t borrowing The government will also work to develop low-income housing, aiming to basically complete five million units and start construction on over seven million units, Premier Wen Jiabao said on Mar. 14 that ensuring they are built to a high standard, he said. the government’s debts are at a controllable The reiteration came when tension between the country’s central and local gov- and safe level, adding that the increase of debts ernments started to emerge on property will be “strictly controlled,” market regulation, with local authorities Xinhua reported. tentatively relaxing the curbs but the Wen told a press con- central government unwilling to see this ference that China’s debt- happen. to-GDP and budget deficit- China has imposed a raft of mea- to-GDP ratios are at a fairly sures since 2010 to cool the runaway low level, and they are both market, including higher down payments, lower than that of many higher loan rates, a ban on third-home developed countries and purchases, property-tax trials and the newly emerging economies. construction of low-income housing. Wen said that in 2010, As a result, new home prices in the the volume of local govern- 70 major Chinese cities monitored by the ment debts stood at 10.7 National Bureau of Statistics all ceased to trillion yuan (1.70 trillion rise in January. U.S. dollars). The figure only increased by 300 Previous data showed that in January 2011, a total of 60 out of 70 cities sur- million yuan by the end of 2011. veyed saw rises in new home prices, and the figure fell to 39 in July. “We will take the local government debts In February, local governments of several east and south China cities an- very seriously, and we will not allow it to ad- nounced plans to loosen restrictions on homebuyers, which were called off within versely affect China’s development,” said Wen. days. The majority of government debts is high “The buying restriction is not likely to be abolished in a short term,” said Guo quality assets, with stable cash flows and prom- Songhai, a professor with Shandong University of Finance and Economics, who ex- ising returns. The debts of some projects can pected the withdrawal to take place only with further improved government policies be repaid by their returns, according to Wen. Figures

climbed 21.5 percent to 2.1189 tril- year, easing from 12.8 percent in De- $2.91b lion yuan ($336 billion) in the first two cember last year, the National Bureau of China’s State Administration of months of 2012 from a year earlier, the Statistics said on Mar. 9. Foreign Exchange (SAFE) said on National Bureau of Statis- Mar. 9 that so far in2012 it has ap- tics (NBS) said on Mar. 9. proved investment quotas of $2.91 $10.3b billion to 23 Qualified Foreign Insti- Japan announced on tutional Investors (QFII). 11.4% Mar. 13 that it has won Chi- China’s industrial nese authorities’ approval value-added output grew to buy 65 billion yuan ($10.3 21.5% 11.4 percent year on year in billion) in Chinese govern- China’s urban fixed asset investment the first two months of this ment bonds.

6 Quotes

China to further reform “US trade bill breaks WTO rules” fiscal-tax systems Trade measures passed by the US Finance Minister Xie Xuren said on Congress violated both US laws and Mar. 18 China will further deepen the World Trade Organization rules, Chen reforms to its fiscal and tax systems to Deming, minister of commerce, was enhance transparency of fiscal budgets quoted as saying by Xinhua on Mar. 7. and improve tax policies, Xinhua re- The US House of Representatives ported. passed a measure confirming that the The nation will strive to promote Commerce Department could impose budgetary policies to cover county-level higher duties on goods from China for, areas this year and strengthen the regu- they claimed, subsidizing exports. The lation and transparency of government Senate passed it on Mar. 5. funds, Xie said at the China Develop- At a press briefing during the National People’s Congress, Chen said ment Forum. that the government had been “abiding by” WTO rules in terms of subsidies. Meanwhile, the country is mulling “The US always likes to point a finger at China and say ‘China is not to increase the proportion of underly- abiding by the rules’ when its own economy is encountering problems,” ing tax, which is smaller compared with Chen said. But it seldom elaborates exactly what rules are being broken, he circulation tax under the current Chinese added. taxation system, Xie said. The underlying tax includes income “Chinese economy is vital for world” tax of individuals and corporate business income tax, while the circulation tax Spanish Minister for Economy and Competition Luis de Guindos says covers the VAT, turnover tax, and con- that the Chinese economy is vital for both the present and the future of the sumption tax. world economy. Further, China will expand trials of The minister made the remarks in a recent interview with Xinhua ahead replacing turnover tax with VAT in a bid of his visit to China on Mar. 20 to help forge closer economic and financial to boost the development of the tertiary relations between the two countries. industry, according to the minister. “China is an element of stability for the world economy...the vitality and dynamism of the Chinese economy has been a fundamental contribution to the world economy and it is playing a very important role,” commented De Guindos. He assured that China will become the most important market in the world in the next 10 years and looked at the chance of commercial, financial and investment cooperation.

Figures

(MOF) announced on Mar. 6 that it will and diesel by 6.5 percent to 7 percent 43% issue two batches of electronic savings effective on Mar. 20 amid rising world China’s government debt amounts to bonds worth up to 50 billion yuan (7.92 crude oil prices and falling domestic about 17.5 trillion yuan (2.78 trillion U.S. billion U.S. dollars). inflation. dollars), about 43 percent of the country’s gross domestic product, Yang Kaisheng, president of the Industrial and Com- 6.5-7% 11% mercial Bank of China, said on Mar. 6. China raised Profit growth for Chinese state- fuel prices for owned enterprises (SOEs) slowed the second time during the first two months of 2012, 50b this year, hik- the Ministry of Finance said on China’s Ministry of Finance ing gasoline Mar. 19.

7 http://cft.ccpit.org www.ccpit-cft.net.cn 2012/04 No.521

Special report It’s time for deepening the reform, 18 and China will keep forging ahead 10 It’s Time to Bail MSEs Out! resolutely. 11 Support MSEs from Strategic Perspective 13 Accelerate Financial Transformation to Serve MSEs

Special TWO SESSIONS report 18 2012 CPPCC & NPC: “Speed Down, Quality Up” 18 Ten Numbers to Interpret the Government Work Report 20 Why the Real Economy Is More “Hollowing-out”? 22 How Could Private Financing Be “Brought into Sunlight”? 23 When Will the “Glass Door” Be Broken?

Gold prices have bounced higher in 25 Interpretation of Economic Hot Issues 54 the first couple of months of this year. 27 I Suggest My Proposal

ECONOMY 36 China 2030: Building a Modern, Harmonious, and Creative High-Income Society 38 Manufacturing Wages are Rising 42 Data Watch on China’s Foreign Trade and Investment in the First Two Months of 2012

Despite the challenges of penetrating Industrial Watch 64 the Chinese market, foreign insurance companies continue to stake their 46 Corn imports by China seen gaining sevenfold to record future in China. 54 Gold – Super-Cycle to Extend 57 Private Equity Fuels Growth of China’s SMEs 58 Food Safety, Who’s at Fault? 60 800 Billion Yuan Chinese Gift Market

survey 64 Foreign Insurance Companies Eye Growth in China

Case Study 68 Golden Trails: A Roadmap Leading to China’s Internet Industry About 300 km Northwest of Beijing, 88 Guyuan County of Hebei Province REGIONAL TRADE AND INVESTMENT has 900 square km of prairie. 70 Northeast China Enhances Ties with Northeast Asia 71 China Became 2nd Largest Investor in Netherlands 72 The Role of China in the European Debt Crisis 74 China and Canada:Ever Stronger Partnerships Sponsored by (主管) 76 The Trans-Pacific Partnership: A High Barrier CCPIT(中国国际贸易促进委员会) Agreement? Published by (主办) Trade Development and Cooperation Center of CCPIT 78 Chinese Investment in Latin American Resources 中国国际贸易促进委员会贸易推广交流中心

THIS IS China 社长 President 杨晓东 Yang Xiaodong 88 总编辑 Editor-in-Chief 孟燕星 Meng Yanxing Guyuan Prairie: the Nearest Natural Wet Grassland 副社长 Vice President 石净 Shi Jing from Beijing 杨复强 Yang Fuqiang 李英宏 Li Yinghong eye on china 编辑部副主任杨蔚 92 See Tourist Sites before Your Meetings Begin Editorial Deputy Director Yang Wei 编辑部 Editorial Department 郭艳 Guo Yan 93 Pricing in China Tel:86-10-68053271 李振 Li Zhen 竹子俊 Zhu Zijun 崔晓玲 Cui Xiaoling 流程总监 Operation Director 张越 Zhang Yue 英文校审 English Polisher 莫雷（美）Adam Morley Index of Advertisements Orient International Holding Shanghai Foreign Trade Co., Ltd. 经营部总经理石净（兼）封二东方国际集团上海市对外贸易有限公司 Marketing Department Director Shi Jing 副总经理 Deputy Director 白义峰 Bai Yifeng Wuxi Jiangjia Construction Machinery Co., Ltd. 01 石林峰 Shi Linfeng 无锡江加建设机械有限公司项目经理 Manager 游万龙 You Wanlong Wenling Xianzi Daily Crafts Factory Tel:86-10-68027947 李小冬 Li Xiaodong 02 温岭市娴姿日用工艺品厂高嵩 Gao Song

Shandong Dachai Cylinder Block & Cylinder Head Co., Ltd. 03 推广部总经理李英宏（兼）山东大柴缸体缸盖有限公司 Distribution Department Director Li Yinghong Shanghai Jingzhan Needle Detecting Machinery Factory 项目经理 Manager 王石 Wang Shi 16 上海精湛检针器制造厂 Tel:86-10-68069328 王岱凌 Wang Dailing

16 Wanshishun Leather and Plastic Buttons Co., Ltd. 秘书处副主任刘晓东浙江永嘉县万事顺皮塑纽扣有限公司 Council Secretariat Deputy Director Liu Xiaodong Nanpi Country Ande Hardware Manufacture Co., Ltd. 联络专员 Assistant 王飞 Wang Fei 17 南皮安德五金制造有限公司 Tel:86-10-68020773 于洋 Yu Yang 戚英杰 Qi Yingjie Jiangyin Shengsai Color Masterbatch Co., Ltd. 石林 Shi Lin 17 江阴胜赛色母料有限公司 General Distributor For Overseas Subscribers 34-35 JONWAY AUTOMOBILE 永源汽车国外发行总代理 China National Publications Import & Export (Group) Corporation Changchun First Automobile Works 44-45 中国图书进出口(集团)总公司一汽集团 Add: 16, Gongti East Road Beijing, China Post Code:100020 62 GUIZHOU CVCINC 贵州中越商贸有限公司地址：北京市朝阳区工体东路16号 Tel: 86-10-65066688-8822 65063082 Quanzhou City Licheng Huangshi Machinery Co., Ltd. China International Book Trading Corporation 63 泉州市鲤城黄石机械有限公司中国国际图书贸易总公司(GUOJISHUDIAN) Add: Box 399, Beijing 100044, China Yuyao City Xinxing Plastic Moulds Co., Ltd. 83 地址：中国北京399号信箱(100044) 宁波新宇进出口有限公司国内邮发代号 80-799 Anhui Jianghuai Automobile Co., Ltd. 封底国际邮发代号 SM1581 江淮汽车国内统一连续出版物号 CN11-1020/F 及国际标准刊号 ISSN0009-4498 Cooperation Media AD LICENCE No. JXGS/G-0249 广告经营许可证号京西工商广字第0465号 Domestic Price 国内订价 16元(RMB) Overseas Price 国外订价 US$5 设计制作北京锋尚制版有限公司印刷北京瑞禾彩色印刷有限公司虚假新闻举报热线 86-10-68053271 License Mark of General Administration of Press and Publication, the People’s Republic of China It’s Time to Bail MSEs Out! By Li Zhen

n March 5, Premier Wen important role in China’s economy. employment and the society, but also Jiabao stressed that the Statistics show that the number of the stimulate domestic demand and gen- government will imple- MSEs registered in the Industrial and erate confidence and hope. ment and improve policies Commercial Bureau has reached 10.23 To ease their economic dif- to promote the growth of micro and million, accounting for 99% of the ficulties, the government must lend Osmall businesses (MSEs), further re- national total. MSEs create 85% of job stronger financial and fiscal support to duce burdens on enterprises, and pro- opportunities in the urban and rural small and micro businesses by reduc- mote the vibrant growth of high-tech areas. Besides, these MSEs produce ing their tax burdens and encouraging MSEs. The development of MSEs has 60% of the GDP by end products and banks to increase loans to them. been raised to national strategic height. services and pay 54.3% of national tax The next two articles in special In recent years, due to tightened income. report are about MSEs. One explores monetary policies at home and rising The MSEs serve as a corner- the importance for supporting MSEs production costs, MSEs faced prob- stone for supporting economic and from a national strategic perspective. lems such as a lack of available credit social development and as a grass- The other explains the necessity for resulting from the difficulty in bor- roots power for industrial restructur- improving financial services to allevi- rowing from banks. ing. Therefore, it is of great signifi- ate MSEs’ difficulties. Hope these two It is widely accepted that MSEs cance to help the MSEs weather the articles can help our readers shed some have been playing an increasingly storm, which will not only stabilize light on this issue.

10 n 2008, the financial tsunami derived from from Support the US sub-prime crisis swept the globe and became the most severe international economic crisis since the world war II. Uncertain international factors, coupled with risks in domestic Ieconomic decline, concern both the central and the Strategic Perspective local governments. Due to difficulties in financing, rising costs and labor shortage, the micro and small enterprises (MSEs) with Wenzhou as representative present such chain reactions as ruptured capital MSEs chain, dunning money lenders and squeezing among guarantee companies, which have attracted attention from the whole society. For developing national strategies, special atten- Although the MSEs serve as an important ba- tion is supposed to be casted on the changing envi- sis for the development of the national economy and ronment where the MSEs survive and countermea- the society, they are undoubtedly full of grass-roots sures are to be researched so that a multi-level sup- economic characteristics due to such factors as small porting policy system will be formed for the MSEs. scale and weak anti-risk capacity. Currently, many In this way, the MSEs will enjoy favorable market rigid constraints including restructuring, energy sav- environment, legal environment and social environ- ing and emission cutting as well as tightening mon- ment which are helpful for sustainable development. etary policies are imposing pressure on the MSEs for Fully understand the role of MSEs surviving. In particular, the MSEs in the traditional manufacturing sector encounter such prominent Closely linked with employment, economic problems as unprecedentedly soaring costs for pro- growth and social stability, the MSEs cover the duction and operation. The debt crisis originated major industries of the national economy, including from private lending in Wenzhou has forced some 84 industry categories, 362 industrial classes and MSEs to close down, some to owe rental and salary 859 industry segments. The intensity of the MSEs and some to evade taxation, all of which have di- determines the income level of the urban and rural rectly impacted the stability of the society. residents, which means that the sounder develop- Under the current complicated economic cir- ment the SMEs enjoy, the higher salary income and cumstances, the above-mentioned situation will eas- property income the urban and rural residents there ily lead to the “butterfly effect”. As far as the author receive. is concerned, the prerequisite for stability is to safe- PengBy Wensheng Statistics show that the number of the MSEs guard the enterprises especially the MSEs. Each and registered in the Industrial and Commercial Bureau every conscientious citizen is supposed to care about has reached 10.23 million, accounting for 99% of the survival of the MSEs, giving more tolerance as the national total number of enterprises and provid- well as understanding and aiding each other in step- ing 85% of job opportunities in the urban and rural ping out of the dilemma. areas. Besides, these MSEs post 60% of the GDP The MSEs play an important role in the na- by end products and services and pay 54.3% of the tional economic and social development, and serve as national total taxation. a cornerstone for supporting economic and social de- According to the statistics in 2010 from the velopment and as a grass-roots power for driving in- Zhejiang Small- and Medium-sized Enterprises dustrial restructuring. Therefore, helping the MSEs Bureau, the number of enterprises with an above- weather the storm is of great significance, which will RMB-20-million sales revenue across the whole not only stabilize employment and the society, but province exceeded 30,000, that with above RMB also stimulate domestic demand and generate confi- 5 million over 60,000, and that below 5 million dence and hope. 150,000 and the number of individually-owned in- Supporting the development of the MSEs dustrial and commercial business exceeded 600,000. serves as an important basis for every country to keep In general, the MSEs account for 99.6% among its national economy running steadily. During the the total enterprises in Zhejiang Province and thus financial crisis, the US MSEs engaged in building serve as a major driving force for the economic de- and retail bore the greatest impact, and the govern- velopment and also for the employment in Zhejiang. ment should give more support to the MSEs with a The Yiwu China Commodity Market boasts of a view to reviving economic growth and creating more number of 62,000 stalls and has attracted a mini- job opportunities, said Treasury Secretary Geithner mum of 30,000 MSEs, which is of irreplaceable when doing testify in the Senator not long ago. significance in terms of securing and improving There is a basic judgment: that whether a coun- people’s livelihood. try’s economy has vigor or not depends much on the

11 development of its MSEs. Only with profit is another change in the macro- Recommendations to support the sound development of the MSEs can economic environment that the MSEs MSEs’ development economy develops rapidly. have to face. In 2010, 30 provinces, MSEs’ difficulties regions and cities raised the minimum For addressing the MSEs’ opera- salary standard. Then in 2011, another tional dilemma resulted from ruptured That the MSEs are confronting 12 provinces, regions and cities further capital chain, both the central and the with difficulties is caused by changes raised the minimum salary standard by local governments at all levels should in the macroeconomic environment, 20%-25%. The textile and garment sec- make more substantial emergency mea- including fluctuating prices of raw ma- tor in Hubei Province raised the average sures and institutional arrangements by terials, sluggish market demand, soar- salary to RMB 2,100 at the end of 2010 increasing loans, reducing long-term ing labor cost and ineffective financing. by 50% from RMB 1, 4000 in early taxation and preparing upgrading. The MSEs with ruptured capital chain 2010. Zhejiang Province aired that the The author hereby suggests es- mainly concentrate in the industries local MSEs were generally plagued with tablishing a state-level comprehensive subject to control under policies and an above 20% labor shortage. reform demo area for the MSEs in Zhe- some related industries, particularly the In the mean time, since the RMB jiang to trial various policies and mea- real estate sector and the MSEs sup- appreciated by 25% in 2004, the export- sures (such as the“36 articles for non- porting the large-scale building enter- led MSEs have decreased profits by 2%. public economy”, “29 articles for the prises. The author learned that the majority small- and medium-sized enterprises” The MSEs occupy the biggest pro- of Whezhou’s MSEs engaged in real and “36 articles for private investments”) portion among all the enterprises and industries only reaped a gross profit of and to guide financial capital and social are also a disadvantaged group. From no more than 10%, 3%-5% to be exact. capital to flow into the demo area and to the perspective of national strategies, What is different from 2008 is that the make a positive example for the MSEs special efforts should be spared to solve shoemaking enterprises in Wenzhou are to achieve sustainable development. the actual difficulties that the MSEs now reluctant to accept orders that con- First, to increase loans in order are facing such as declining order, de- sume over 3 months and these enter- to expand the financing channels for creasing production, too low profit and prises dare not manufacture even with the MSEs. According to the China mounting labor disputes. orders. Banking Regulatory Commission, the Mounting cost for production and More difficult to finance is a third domestic bank loans mainly go for the operation along with soaring prices of change in the macroeconomic environ- large-scale enterprises, which indicates energy and raw materials are changes ment that the MSEs have to face. Since that 100% of the large-scale enterprises in the macroeconomic environment 2010, difficulties in financing for the can get loans, 90% of the medium-sized that the MSEs have to face. Since the MSEs have become more and more enterprises and only 20% of the MSEs. first quarter of 2011, the prices for such prominent in economic development. High threshold for bank loans, mount- power fuel as coal and oil have increased The central bank has raised the deposit ing financial costs resulted from rising 10% year-on-year. In particular, the reserve rate and interest rate with the interest rates and prolonged approval prices for oil products have grown 20% former hitting a record high of 25% and time are the major problems confront- over the previous year and the power the short-term bank loan interest reaching the MSEs. shortage has been around 30% on aver- ing 6.31%. There are mainly two countermea- age. In order to control inflation, after sures: first, the provincial-level govern- Affected by the soaring prices for the implementation of tight monetary ment is to establish risk compensation means of production, the purchasing policies, the banks slash credit scale and bank fund for the MSEs in a bid to prices of raw materials for the MSEs reserve the available credit to large and guide the financial institutions to adjust post a year-on-year increase of 10.2%, key clients, reducing the MSEs into service clients, ensure the credit scale while the ex-factory price of products despair. During the first four months of of the MSEs and to develop specific increased 7.1% year-on-year. Some this year, the Industrial and Commer- measures for obtaining mortgage and enterprises complained that the price cial Bank in Zhejiang Province newly pledge loans by mortgaging intangible of cotton yarn had increased to RMB issued RMB 1.3 billion of loans, RMB assets including patents, brands and or- 30,000/ton from RMB 20,000/ton in 8.5 billion less over the previous year. ders. Second, more private finance is to 2010 and manufacturing garments was Through researches, the author has be encouraged to operate transparently, not as profitable as directly selling raw learned that the MSEs mainly concen- small-scale financial institutions includ- materials. trate in the traditional stagnant manu- ing community banks, town banks, Against the backdrop of inflation, facturing industries such as leather shoe technology banks and small-volume rising cost will be a long-term trend making and toy manufacturing, which lending companies will be developed for the MSEs. The problem lies in that have actually come to the strategic pass specially for the MSEs so that various the soaring cost cannot be made up by for updating. As technical transforma- financial products meeting the MSEs’ increasing product prices and the MSEs tion and equipment introduction call for needs will be developed and financial are reduced into a survival dilemma. more input, capital shortage has made regulatory policies will be differentiated Higher labor cost and squeezing things worse still. for the MSEs.

12 Second, to relieve burden and provide taxation support for t the 2011 National Finan- the MSEs. By the end of 2010, the MSEs had paid 54.3% tax cial Work Conference, it among the national total, 1.9 times of that in 2005 and regis- was clearly pointed out that tering an annual growth rate of 13.31%. The MSEs have con- finance should continue

tributed most taxation, but more preferential polices are absent to serve the real economy and that Transformation to Financial Accelerate compared with the large-scale enterprises enjoying monopoly Acapital should be ensured to be input- superiority. According to rough estimation, there are 18 depart- ted into the real economy in a bid to ments in total collecting administrative fees under 69 categories effectively solve the problems that it from the MSEs. was difficult and expensive to finance Therefore, I suggest endowing the MSEs with fair national for the real economy. From the current treatment so as to create favorable conditions for the MSEs to development status quo of the Chinese upgrade. There are two crucial countermeasures: first, to estab- economy and the financial market, that lish a fund for the development of the MSEs with fund volume finance serves the real economy will to be expanded year by year and more and more MSEs to be serve as a basic principle for China’s fu- benefited. Second, to specify the taxation rate preferential scope ture financial reform and development. for the MSEs, exempt all the administrative fees for the MSEs Virtuous interaction between during the process of establishment and to exempt the income finance and economic taxation and decrease the value-added tax within a specific term. transformation Third, to encourage innovation and support the MSEs in terms of upgrading. First, to establish a public technology-inno- Derived from and serving the vation service platform. Led by the local governmental technical real economy, the financial sector departments at all levels and backed by the higher education needs to be coordinated with the real institutions, R&D institutions and large-scale backbone enter- economy. Transforming the develop-

prises, support will be provided for the MSEs in terms of generic ment philosophy of the financial sector MSEs Serve technologies and basic technologies and the technology innova- and boosting financial development tion plan, special industrial upgrading plan and cultivation plan will accelerate the pace of industrial re- will be implemented for the MSEs. Second, to set up industrial structuring. Finance is a control means R&D institutions for the MSEs. Regarding the initial fund for the macro economy and is also an needed by the R&D institutions, the State will input 30% (sparing instrument for resource allocation and one proportion from the R&D fund for the new and high tech- financing. Facilitating transformation nological enterprises) and the rest 70% will be obtained from the of the operation model in the financial MSEs via the development of specific products. In this way, the sector and optimizing the efficiency of industrial R&D institutions research high-technological prod- financial resource allocation is help- ucts for the MSEs; the MSEs specialize in industrialization with ful to achieve the transformation of no need to spend capital in sustaining their own R&D team; the harmonious growth of consumption, State effectively utilizes the capital and cultivates its own high- investments and exports, promote inde- technological enterprises, which will support the MSEs in terms pendent innovation and to quicken eco- of upgrading, expanding job opportunities and stabilizing the nomic restructuring, which are also the society. strategic point for China to transform A string of measures adopted by the central and the local the economic development pattern. governments have begun to take effect. The MSEs begin to re- At the same time, the develop- cover, but their profits are not rising. Some banks offer the same ment of the financial sector is closely Shusong Ba By procedures and conditions for applying loans and the supporting linked with the economic framework fund for the MSEs is actually far from being adequate. Besides, and the conditions it faces. Transform- next year’s economic situation remains uncertain. ing the economic development pattern The more difficult the time is, the more risky the MSEs are is fundamentally a profound economic and the more support the MSEs need. Various supporting poli- reform, which will greatly impact the cies should be rationalized at an all-around manner, and based economic framework and thus bring on the “exemption, reduction and postponement” principle more tremendous new demands for the fi- efforts need to be spared in reducing interest rates, taxation and nancial sector. For instance, tremendous fees so that the MSEs will pull through with less pressure. The new financial demands will be emerged sound development of the MSEs serves as the cornerstone for concerning optimizing and upgrading social stability and for people’s livelihood. We need to value and industrial structure, improving people’s kindly treat the MSEs, as it is widely known that the world- livelihood, expanding consumption, famous Apple Inc. comes into being from Steve Jobs’ garage. developing the SMEs, saving energy and cutting emission as well as explor- (Author: Chief Economist of China International Capi- ing new energy, developing rural econ- tal Corporation) omy and balancing regional economic

13 development. This will help financial intends to favor the capital-intensive and heavy-asset in- service to achieve the following crucial dustrial enterprises and the enterprises have to mortgage a transitions. considerable volume of fixed assets in order to obtain loans First, the financial departments from the banks. However, always concentrated in such will turn to serve both the large-scale light-asset sectors as distribution and commerce as well and small-sized enterprises from mainly as service, the MSEs face great difficulties in obtaining focusing on the former and theses de- credit support from the banks. partments will focus on providing more In the course of economic transformation, industrial financial support for the SMEs and upgrading is an important content. China’s economy is easing financial exclusion for the SMEs transiting from the traditional manufacturing relying on from the large-scale enterprises. intensive resource input to a harmonious industrial struc- Second, the financial departments ture where the primary, secondary and tertiary industries turn to serve the agriculture, manu- 90% of experience balanced development. In general, China’s facturing and the service sectors from China’s economy is transiting to both light assets and heavy assets mainly serving manufacturing and will below-scale from heavy assets and to both intangible and tangible as- focus on providing more support for the sets from tangible assets. agriculture and service sectors with a enterprises This poses a severe challenge to the banks to enhance view to facilitating industrial transfor- and 95% of their capabilities regarding risk identification and pricing mation. the MSEs when collateral is absent and this also serves as a starting Serving MSEs: a breakthrough have never point for the banks to gradually achieve segmentation. for financial transformation The MSEs are the credit clients for light assets and in the had borrowed mean time their risk features can fully reflect interest rate Across the globe, MSEs’ obtain- money from differentiation, which may serve as an important breaking loans is an arduous task for any banks. through for the banks to seek transformation. financial system. The high risks of the For the banks, serving the MSEs is also a realistic MSEs’ operation situation is in conflict choice against the backdrop that capital constraints be- with the banks’ prudent principle when come more and more obvious. It is hard for the banks granting loans, therefore the MSEs can to maintain the traditional operation model featuring only obtain very limited loans from the quantity making up for the price and extensive expansion, financial institutions no matter in the which over consumes capital, and the banks are forced to developed countries or in the developing adjust their operation structure and profit-making model countries. by turning to a capital- saving and diverse operation Statistics from the All-China model. Federation Industry and Commerce According to the Measures on Managing Capital of show that 90% of China’s below-scale the Commercial Banks, the 75% preferential risk weight enterprises and 95% of the MSEs have is applicable to loans for the SMEs under the weighting never had borrowed money from banks. In China, the special difficulties for the MSEs to obtain loans also lie in that they are the first to bear the brunt of being excluded due to credit squeeze. First, the confused financial pricing mechanism has no way to provide adequate financial support for the MSEs. Since 2011, the tightening monetary framework featuring quantity con- trolling instruments has been favorable for the large-scale enterprises to enjoy credit superiority. In the mean time, the generally low interest rate cannot reflect the actual capital costs, which makes the large- and small-sized enterprises have no difference in capital utilization efficiency. Second, the banks’ traditional mortgage credit pattern results in inadequate support for the light-asset MSEs. The existing bank financing system

14 method, and the preferential capital the requirements for increasing loans to innovated the credit risk management regulation referring to retail loan is ap- the MSEs, differentiation assessment means and has gradually raised the pro- plicable under internal assessment. For for non-performing loans and issu- portion of such non-mortgage patterns the banking sector where capital is badly ance of specialized financial debts. The as guarantee and credit in the loan mix. needed, serving the MSEs is undoubt- improvement of the financial system If focusing on the banks’ profits edly of actual significance to cut capital and the construction of the small-sized and violently employing administra- consumption. financial institutions is a long-term and tive measures to decrease the MSEs’ Risk pricing guides finance to step-by-step process. As a result, the financing costs, the securer large-scale serve MSEs most direct and effective expedient is enterprises is obviously a wise choice for undoubtedly to bring the fundamental the banks. As a result, the MSEs have With a small scale, unstable rev- role of risk pricing in credit resource to turn to the more expensive private enue, weak risk resistance, high possi- allocation into full play in order to ulti- credit, which actually makes them un- bility for loan default and absent eligible mately integrate the financial supply and dertake the cost when violating the risk collateral, the MSEs bring a high cost demand parties. pricing law. and risk premium to the banks that are Although this initiative may raise Reduce financing costs for MSEs reluctant to be exposed to risks. Taking the financing costs for the MSEs and the financial institutions’ cost, risks and bring more profits to the banks, risk From the long run, in order to revenue into account, granting loans pricing guiding the banks’ credit re- help the MSEs obtain more credit and to the SMEs is not an optimal market source allocation is undoubtedly most control the financing costs, the external choice for the large-scale banks. effective from the perspective of the diseconomy of the banking sector’s risk This is also why it is so difficult and entire economic operation. Foreign prevention should be decreased as much expensive for the MSEs to finance. In counterparts’ experience shows that if as possible. particular when the credit resources are financing the large-scale enterprises is Above all, positive financial poli- scarce, credit supply tends to go to the the banks’ wholesale business, while fi- cies should be employed to improve the enterprises with low operational risks nancing the SMEs is retail business. taxation supporting measures for the yet strong negotiation ability, which Every loan volume required by the MSEs and to earnestly alleviate the makes the banks favor the large-scale SMEs is not very large, but the issuance taxation burden of the MSEs. Besides, enterprises for granting loans. Thus, the and handling procedures from investiga- the financial institutions’ preferential large-scale enterprises enjoy much supe- tion, assessment to supervision are almost financial policies supporting the MSEs riority in obtaining credit support, while identical, and the per unit transaction cost through before-tax provision and verifi- the MSEs face much pressure in being of the banks’ loans is rising. Therefore, cation of bad and non-performing debts squeezed out. The following approaches for the same volume of loans, the banks are supposed to be further implemented may help the MSEs to obtain more spend more per unit cost for the SMEs and the local governments are encour- credit support. that need a large volume of loans. aged to set up a risk compensation fund First, to perfect the financial ser- Thus, the small-volume capital for the MSEs so that the MSEs may vice system, develop a multi-level credit needed by the SMEs makes its financ- assume reduced risk cost for obtain- market and develop small financial in- ing interest rates 2%-4% higher than ing loans. Secondly, the banks need to stitutions. Naturally closely linked with that of the above-scale capital financing. be guided to provide quality financial the SMEs, the small- and medium- Apart from the operational costs, as the services for the MSE and cut loan pric- sized banks are able to provide custom- small-sized enterprises are more vulner- ing and management cost. The banks ized services for the MSEs. able to economic fluctuations compared are also encouraged to set up business Second, to make the capital price with the large-scale enterprises, great units in various types and a professional be subject to market fluctuations. In uncertainties and high risks make the operation team, innovate risk preven- line with the “revenue covering risks” MSEs assume higher risk premium. tion mechanism and to utilize moveable principle, the risks and costs the banks Not long ago, the media heat- properties or rights including invento- assume when providing credit for the edly discussed “the banks’ high interest ries, accounts receivable and patents as MSEs will be truly reflected. rates”, but they ignored that the banks pledge so that the MSEs will have lower Third, to enhance the MSEs’ risk had to assume great risks when provid- threshold and costs for obtaining loans. resistance. The regulatory departments ing credit support for the MSEs and Lastly, the financial intuitional reform are supposed to offer suitable preferen- great costs in identifying and managing needs to be deepened in a move to en- tial measures regarding before-tax re- risks as they had begun to turn to credit courage fair completion in the financial duction of bad debt reserve and before- loans from mortgage loans. market and to offer more options for the tax verification of non-performing loans For instance, China Minsheng MSEs to finance. in a bid to make the commercial banks Banking Corp. Ltd. has offered an up- more positive to operate such businesses. dated 2.0 version for the MSEs, aiming (Author: Deputy Director Gen- Currently, the financial regula- at establishing 100-150 professional eral, Research Institute of Finance, tory environment for the MSEs to branches to provide financial services for Development Research Center of provide credit is optimizing, including the MSEs in some certain industries, China’s State Council)

15 SHANGHAI JING ZHAN JIANZHENQI ZHIZAO CHANG 上海精湛检针器制造厂

Shanghai Jinzhan Needle Detectors Manufacturing Plant is a professional manufacturer of detectors and associated equipment. Though we are newly established. we take excellent quality and perfect after-sales service as our first priority As far as the future market demand is concerned. we decide to go along the way of sustainable development. As what this farsighted develaping strategy tells. Jingzhan staff is pursuing high technical skills and faithful character. which would lay a foundation for further blossom and development. In the field of inspection equipment. detectors are not newly high-tech but quite ordinary. You can’t say quality of imporled detectors is definitely excellent. since we dare to claim that our detectors can rival the imported ones. At the same time we pay fully attention to our customers. As far as what we’ve learned. what the customers care about are the quality, after-sales service and the price. So we set a stricter OC inspection standard to strictly control the praducts' quality; on the behalf of after-sales service. we promise one year warranty and lifelong service to increase customers’ confidence in our after-sales service; on the price, we keep a principle of small profit to pay back our new and regular customers. Praise from customers is our motivation. and what new era’s pursuing is our orientation. Let us dedicate aurselves in giving you more and better by adhering to the tenet of “higher quality. lower price and better service”. We believe that is the very way Jingzhan needs to go along taday and tomarrow.

SHANGHAI JING ZHAN JIANZHENQI ZHIZAO CHANG Address: No.53,Xingfuli Street,Xingta Industrial Park, Fengjing www.jianzhenji.com.cn www.jingzhan.sh.cn County, Jinshan District, Shanghai, China http://jingzhan2.cn.alibaba.com Tel: 021-57361538 Fax: 57363957 E-mail:[email protected]

Wanshishun Leather and Plastic Buttons Co., Ltd. in Yongjia County, Zhejiang Province

Incorporated in 1990 in Qiaotou Town, the town of buttons, Wanshishun employs over 200 people and covers an area of 4000 square meters. It is a professional producer of buttons, mainly buttons for men’s suits, women’s clothes, shirts, technological process buttons, buttons of different shapes, plastic buttons and children’s decorative buttons. The company boasts advanced equipment imported from Italy and world-class resin button production line. In Wanshishun, we have a strict quality control system. Our products are of stably good quality, winning the satisfaction of our Chinese and international clients. We welcome business calls and emails from home and abroad.

• Address: Foreign Capital Industrial Zone in Qiaotou Town, Yongjia County, Zhejiang Province • Tele: 86-0577-7455979 • Fax: 86-0577-7452287 • http://hkjum1346226.51sole.com http://luoxiaozhong.cn.busytrade.com 江阴市胜赛色母料有限公司 Jiangyin Shengsai Color Masterbatch Co., Ltd

Jiangyin Shengsai Color Masterbatch Co., Ltd is located at the East Industry Garden of Binjiang Economic development zone in jiangyin city, Jiangsu province. With a bigger scale among the colleagues, presently she has nearly 3,500square meters floor space,8 production lines of double screw rod,150 staffs and 10technical personnel. Registered with 5 million Yuan, Jiangyin Shengsai whose productivity may amount to 10,000tons every year, is situated the domestic front row. Being one member of China Color Masterbatch Association, the company is specialized in manufacturing plastic color masterbatch. It is nongovernmental science technology enterprise, and of AAA grade level. It has advanced equipment, complete testing means ,credible quality assurance system. Our products widely used in PE、PP、ABS、AS、PS、PET、PP-R、 BOPP, also sued in film blowing ,injection and weave wire-drawing and so on . Meanwhile she produces PE, PP transparent masterbatch, high concentrate masterbatch (40%organic pigment), stuffing color masterbatch, cable color masterbatch, and functional color masterbatch of antibiosis, ageing resistance, ant fading, anti- static, high temperature resistance and other features. Her products have been sold well to various parts of the country, even far away to American, Europe, Saudi Arabia, Sudan and some southeast countries, receiving a great favor by the general foreign customers and the domestic.

Address: Canglin Bridge, Shanguan Town, Jiangyin Tel: 86-510-86132666/86132327/86132555 Fax: 86-510-86138860 Website: Http://www.sssml.com E-mail: [email protected] [email protected] [email protected] 2012 CPPCC & NPC: s the term of this session of Chinese government “Speed Down, Quality Up” approaches its end in the year 2012, this year’s —It’s Time for Deepening Reform government work report, as always an important part of the two con- By Guo Yan A ferences (NPC and CPPCC), has grabbed the public attention again. t’s time for deepening the reform, and we will keep forging ahead reso- China’s Foreign Trade magazine lutely”, spokesman Zhao Qizheng made this remark as the prelude to picked up ten numbers from the re- 2012 CPPCC & NPC on the first press conference of the Fifth Session port to see the direction of Chinese of Eleventh CPPCC National Committee in March. government policy in 2012. “Without reform, there would be no sustained development in the future. No.1: GDP up by 7.5% “ITherefore, reform is not a business of several years, and it must be carried out for —slower speed for better two decades, or even the first 50 years of the 21st century. This great cause must be development carried forward.” The speech made by Deng Xiaoping during his inspection tour to southern China 20 years ago initiated China’s reform. In the Government Work This is the first time in recent Report of 20 years afterwards, the word “reform” is referred to for nearly 70 times, five years that the Chinese govern- which demonstrates its great significance. After 30 years’ reform and opening up, ment decided to lower the economic China’s reform has come to its critical stage. Li Yining, member of the CPPCC growth expectation. Ba Shusong, National Committee, and deputy director of the Economic Committee puts that vice director of the finance research China’s reform in the past thirty years adopts the “exploring method” in a “bottom- institute of the Development Re- up” mode, but what China needs most now are “top-level design” and “top-down” search Center of the State Council, overall planning. This macro-consideration covers a long list of most urgent issues said that lowering the GDP growth China must deal with: reform of central and local revenue-sharing system, relations rate is based on the judgment on between fiscal and financial issues, direction of financial reform, internationalization the macroeconomic condition, of the RMB, exchange rate regime reform and local financial problems. and also indicative of the demands Facing with opportunities and challenges all at once, what China should do for economic restructuring. Jiang to make steady progress? As a rising power, where will China go? During the 2012 Minglin, member of the CPPCC CPPCC & NPC, “reform” was the focus of concern of the Chinese people, and the standing committee and counselor whole world waited to hear China’s approaches to reform. to the State Council, stated that this During the 2012 CPPCC & NPC, apart from China’s economic growth rate, policy adjustment displayed a sign much more attention was paid to such critical issues as China’s economic restructure of giving priority to the quality of methods, reform of income distribution mode, ways to solve financing problems of economic development, rather than SMEs, when the pension dual-track system can be merged, specific measures to deal its speed. with three-dimensional rural issues, the implementation of private capital access re- No.2: CPI growth margin form, etc.. In the Government Work Report announced by Premier Wen Jiabao, a se- around 4% —still a huge ries of specific data stretches for us China’s great achievements in 2011, and depicts the challenge development prospects of the year 2012. The nine major tasks of 2012 are also clearly specified in the report: expanding domestic demand, maintaining price stability, Yao Jingyuan, contract re- promoting the steady development of agriculture and continuous increase of farmers’ search fellow of the advisory office income, accelerating the transformation of economic development mode, thoroughly of the State Council, states that implementing the strategy of rejuvenating the country through science and education tasks for this year still pose great and talents strategy for powerful nation, guaranteeing and improving people's liveli- challenges. Considering the rising hood, promoting cultural development, forging ahead in-depth reform of key areas, price of bulk goods in the global and striving to improve the quality and level of opening up to the outside world. market, such as oil and nonferrous Although the 2012 CPPCC & NPC have ended, discussion over China’s metal, the imported inflation will reform goes on. China still has a long way to go in its reform. This issue of China's bring a lot of uncertainties to the Foreign Trade reviews with you the 2012 CPPCC & NPC. Chinese economy. Also, some deep

18 Ten Numbers to Interpret the Government Work Report

conf licts or problems have not been resolved and we should not be over- optimistic. No.3: Import volume up by 10% —growth expectation is down but it is important to raise added value of the foreign trade The growth rate target of the 2012 foreign trade volume is about 10%. Compared with more than 20% growth rate of foreign trade in previous years, the fall-back is very obvious. Zhang Yansheng, director of the foreign economic research institute of the State Reform and Development Com- mission, says that we should pay more attention to transforming the mode of trade and raising the added value, rather than being under the thumb of Premier Wen Jiabao at foreign companies. The major problem the press conference to our current trade growth mode is that we have a very huge trade volume but low added value. But it is the added value that constitutes major contribu- service industry, creative technology management of financing platform of tions to GDP. companies and small and micro com- local government and make the finance No.4: The number of newly panies to create more job positions. more sustainable. employed exceed 9 million No.6: Education investment —small and micro business as No.5: The budget deficit is 800 accounts for 4% of GDP —4% is the major driving force billion, a cut of 1.5% of GDP. only the first step —fiscal policy still “positive” As the world economy is strug- The central government has made gling for recovery, it is very significant Although this number has firm decision to realize the 4%. To en- for China to stabilize its employment dropped from that of previous years, it sure adequate fund resources, all local rate. Chinese current unemployment still looms large in terms of the abso- governments have to allocate 10% of condition is very complicated, which is lute quantity, signaling robust trend of its revenue from land sales into educa- best illustrated by the “shortage of mi- financial expansion. Jia Kang, director tion fund. Zhong Binglin, member of grant labors”, the difficulty for college of the financial science institute of the CPPCC and president of the Beijing graduates to get employed and existing Ministry of Finance and member of Normal University, has more concerns urban unemployment condition. Cai CPPCC, says that the positive Chinese about how to dispose of the 2 trillion Fang, member of the NPC standing financial policy gives special emphasis yuan. Guo Chuanjie, member of the committee, and director of the demog- to the pre-set or micro adjustments of CPPCC and former party secretary of raphy and labor economics research policy decisions, combing stability with the University of Science and Technol- institute of the Chinese Academy of flexibility. Also Gao Peiyong, director ogy of China, suggested alleviating the Social Science, says that it is necessary of the finance and trade institute of the education inequalities and putting the to exercise more proactive employment Chinese Academy of Social Sciences, limited investment into inner develop- policy by mobilizing the government, says that although the deficit rate is ment through a more effective moni- market and personal strength. Priori- decreasing, it is important to prevent or toring system of the education fund ties should be given to the modern control potential risks, strengthen the utilization.

19 No.7: 186.8 billion yuan —invest more in agriculture, n recent years, in face of a slowdown in the rural areas and farmers, the most important work domestic and global economy and a remaining high cost of labor, raw material and It is the primary work for the central government to feed financing, more and more Chinese entrepre- the Chinese population of 1.3 billion. Wang Yi, director of neurs decide to remove or reduce the once profit- the rural work office of Gansu Provincial Party Committee, yielding real industries while shifting their focus says that such a group of figures means a lot to the Chinese I to unfamiliar investment or real estate sectors. This people. Qin Fu, director of the rural economic and develop- trend is leading to a serious “hollowing-out” of the ment research institute of the Chinese Academy of Agricultural nation’s industries. Sciences, also says that the government shall ensure effective This year’s Chinese People’s Political Consul- supply of agricultural products, especially those basic agricul- tative Conference (CPPCC) adopted a proposal tural products. It will boost farmers’ production initiative and on reinforcing the real economy from the China increase their income. Rough estimates say that the budget for Democratic National Construction Association this year will increase by 15.8% from last year. (CDNCA), Chinese Peasants’ and Workers’ Demo- No.8: Urbanization rate exceeding 50% —a historical cratic Party, and All-China Federation of Industry change of Chinese social structure and Commerce, as the first policy document for discussion at its annual session. This proposal is of Du Yulin, vice director and deputy secretary of the party great significance in that it is the first one that has of Shangxi NPC standing committee, says that urbanization been jointly put forward by three political groups to will bring more employment, education, medical treatment and the CPPCC. other social benefits to farmers. On the other hand, a further The proposal points out that the bottleneck urbanization will alleviate the problems associate with rapid in China’s real economy is caused by six major expansion of big cities. However, Zheng Songyan, former assis- reasons: first, due to multiple factors, many small tant to Fujian provincial governor, expresses his concern that it and medium-sized enterprises (SMEs) in the real is necessary to prevent wildcat construction and pay great atten- economy are under the great pressure of rising pro- tion to ecological and security assessments during the urbaniza- duction costs and razor-thin profits; second, exces- tion. sive state monopolies constrain the access of pri- No.9: 240 yuan —subsidies to new cooperative vate capital into SMEs, thus seriously limiting the medical service in rural areas and basic medical growth of SMEs and turning a large amount of insurance for urban residents have increased. private capital into hot money; third, in the wake of the global financial crisis, SMEs in real econo- This year the subsidy standard will further rise to 240 yuan my are receiving fewer orders and facing a serious and the new social pension system for rural and urban residents overcapacity problem due to a shrinkage in market will cover all the people. Zhu Junsheng, vice director of the demand; fourth, private SMEs in downstream School of Labor Economics, Capital University of Econom- industries are facing serious problems such as fi- ics and Business, says that a total coverage will be a milestone nancing difficulties and labor shortages, forming event, although the 240 yuan might sound little when handing a sharp contrast to those in upstream industries; out to each person. Niang Maoxian (Tibetan people), direc- fifth, returns from investment in virtual economy tor of department of gynaecology and obstetrics of the People’s are much higher and can be gained at a faster pace Hospital of Huangnan Tibetan Autonomous Prefecture, Qing- than investment in real economy, so capital natu- hai Province, says that this shows the government’s determina- rally flows to the virtual economy; sixth, business tion to solve the issue of “difficulty and high costs of getting innovation requires heavy investment and also medical service”, and will solve the trouble for the people. carries enormous stakes. SMEs, insufficient in No.10: 7 million newly built indemnificatory houses resources and abilities, will inevitably encounter a —heavier task, greater expectation serious obstacle in innovation and transformation. Gu Shengzu, member of the Standing Com- Zhang Hongming, director of the urban and real estate mittee of the NPC and vice chairman of the research institute of Shanghai Academy of Social Sciences, CNDCA, said that the real sector, as the founda- says that the number of 7 million is fairly huge and means a lot tion of the national economy, is the major driver of hard work to be done, but this is really a shining point for for employment growth and innovation. However, the improvement of social welfare. But the protection scope of as the financial system disconnects from the real this system, as well as the choice between sales and rent of the economy and social capital flows from real indus- indemnificatory houses remains heated topics where the pub- tries to virtual industries, enterprises in real sector lic opinion divides. Nie Meisheng, president of the real estate are stuck in a serious plight for survival, which enterprise association of All-China Federation of Industry and is shattering the foundation of real economy and Commerce, emphasizes that this is related to the goal and start- posing a potential “hollowing-out” threat to the ing point of implementing the indemnificatory system. national economy. Yan Qingmin, member of the CPPCC, also points out that some state-owned

20 Why the Real Economy Is More “Hollowing-out”? By Audrey Guo

ernment should transfer all possible ment should boost the development of resources, such as loans and land, strategic emerging industries and form to the real economy and eliminate a favorable social environment for the excessive profits from speculative promotion of real economy. activities. The situation of “first- As is known to all, a country’s rate enterprises are engaged in the core competitiveness mainly lies in its finance industry, second-rate enter- competitiveness of real economy. Once prises in real-estate industry, third- the real industries are hollowed out, the rate enterprises in market while the economy of the country will be nothing real economy fourth-rate enterprises in the real but a mirage. Li Weihua, president of Profit of private sector” should be basically altered. the Federation of Industry and Com- capital “Hollowing-out” real economy More financial support should merce of Anhui Province, also warned be given to enterprises in real that despite the fact that real economy enterprises are venturing into the stock economy, so as to alleviate their burden creates big fortune, the virtual economy and real-estate markets and this has and increase profits. The government is also essential for the development of sped up the collapse of the real econo- should provide more market access for real economy. Li believed that the real my. Jiangying, president of the Shang- private capitals on establishing financial economy is facing the problems of high hai Electric Group Co., Ltd, who also institutions, change the private finance production cost, high taxation, difficult submited a proposal on real economy from growing abnormally underground financing and labor shortage, while in- development, believes that this round to growing rationally aboveboard, real- vestment in the virtual economy always of financial crisis is actually triggered ize a virtuous interaction between the has higher returns. In this regard, the by the excessive expansion of virtual real economy and the financial system, government should balance the invest- economy and the continuous shrinkage and orient the financial industry to serve ment in the development of the real of real economy. The major reason why the real economy. Private capitals should sector and virtual sector. These two sec- Germany survived the European debt be encouraged to back up the establish- tors are always complementary in that crisis is that Germany always highlights ment of a service system, in a purpose to the real economy is the basis for the the development of its real economy. strengthen the service capacity, enlarge development of virtual economy, while Other western economies, frustrated by its coverage and provide social services, the virtual economy backs up the fast an uncontrolled pursuit of virtual econ- including intellectuals, capital and tech- growth of real economy. omy, are also starting a new round of nology, for the effective reforming and Jin Jianhua, member of the CP- “industrialization”, so as to regain their upgrading of SMEs. PCC and head of the Bund Plaza and competitiveness in the manufacturing Xia Bin, member of the Monetary Shanghai Peiluomeng Western-style industry. Therefore, China, as a big Policy Committee of the People’s Bank Suits Company, believes that in de- manufacturing country, should firmly of China (PBC) agrees with the opin- veloping real economy, it is necessary boost its real economy and follow the ion that the government should lower to properly handle the relationship industrialization road. This is the only the threshold of investment in some between service industries and manu- way to give China a sturdier foundation industries, especially those monopolized facturing industries, between special- for economic growth. industries. As to how to make full use ization and diversification, as well as In the joint proposal, it is suggested of the large amount of private capitals, between input and yields. Enterprises that China should expand the financ- Chen De, another member of the CP- should focus on and make money from ing channels for SMEs and investment PCC, told the reporter that there should real industries which they are more channels for private capitals, especially be national policies, laws and regulations familiar with and good at, instead of accelerate the reform of monopolized regulating the use of these capitals and speculating in the stock or futures industries and guide private capitals guarantee an effective role of these capi- market, stressed by Ren Hongbin, the into emerging industries of strategic tals in real economy. Nan Cunhui, presi- president of China National Machinery importance and widen the space for the dent of the Zhengtai Group of Zhejiang Industry Corporation and also a mem- development of real economy. The gov- Province, suggested that the govern- ber of the CPPCC, in an interview.

21 How Could Private Financing Be “Brought into Sunlight”?

By Guo Xiaosheng

ccording to the sample sur- est rate definitely poses a great threat of facilitating the transformation and vey among 38,000 small and to those enterprises and also greatly re- upgrading of industries, and such pri- micro industrial businesses duces their revenues and value. vate lending is usually defined as illegal by the National Bureau of Zong Qinghou, president of fund-raising. Under such circumstances, Statistics of China (NBSC), only 15.5% Hangzhou Wahaha Group Co., Ltd many representatives have reached a Aof these enterprises have access to bank and also a CPPCC member, points out consensus that the current financial sys- loans. As banks and financial institu- that the reason why banks are biased tems should be immediately reformed. tions have raised the benchmark inter- against SMEs in granting loans lies in Statistics show that the total pri- est rate for small and medium-sized that if a bank lends money to a SME vate capital in commercial banks has enterprises (SMEs) by 30% to 50%, which ends up defaulting on this loan, amounted to 3 trillion, while there are and along with the burden of financial the management of the bank will be still so many SMEs suffering severe packages, deposit takings and payment held accountable. However, if a bank financing difficulties. Xu Ming, rep- for intermediary financial agencies, the lends money to the government or large resentative of the NPC suggests that cost for those SMEs lending money and medium-sized enterprises, even the government should legalize private usually exceeds 14%, nearly or over two though these debts go uncollectable, the financing and promote an effective and folds of the benchmark interest rate. management of the bank will take rela- efficient flow of private capital, so as Some SMEs loan applications are even tively less responsibility for this loss. to support the development of SMEs. rejected by banks because of their inade- At present, banks at the commu- Another representative, Li Weihua, quate scale and profitability. With great nity and township level that is capable also suggests that the threshold for pri- difficulties in public financing, some of lending money to SMEs or even vate capital to enter the financial sector enterprises are suffering severe survival micro businesses are obviously insuf- should be properly lowered and private predicaments and thus have to turn to ficient, while banks that are involved in financing should be brought into sun- private lending. In provinces like Zhe- such underground lending are illegal light. The advice of a CPPCC member, jiang, where a lot of SMEs are located, and unregulated, said another CPPCC Li Lan, is that, on the one hand, private 80% of these SMEs lend money from member, Chen Zhilie, also the presi- capital should be incorporated into the private investors. Almost all households dent of the Yanxiang Group. Though country’s indirect financing system and in the Wenzhou City of Zhejiang Prov- laws defining the nature of private fi- function in the restructuring and merg- ince are involved in underground lend- nancing remain unclear, many SMEs er of banks and financial institutions. ing. and micro enterprises are still going for On the other hand, a direct financing Li Yuefeng, member of the Chi- private lending because of high inter- system that mainly relies on private nese People’s Political Consultative ests. According to Liu Yonghao, deputy capital to back up the development of Conference (CPPCC), said in an inter- director of the Economy Committee real economy should also be established. view, that because of some banks’ “dis- of the CPPCC and head of the New Chen Zhilie said, the China criminatory” treatment to cash-strapped Hope Group, private finance only exists Banking Regulatory Commission SMEs in granting loans, many SMEs when there is a market for it. Another (CBRC) promised that 1,027 township- would rather lend money from private CPPCC member, Cheng Yuechong, level banks would be set up in the past investors at a high annual interest rate is concerned that most of the private four years, some of which would be of 50%, than lending from banks. A capital is being used for lending instead transformed from some micro-credit survey of 90 SMEs shows that 12 of companies. However, up until now, the 90 SMEs (13.33%) have gathered none of these micro-credit companies 83.97 million RMB from private lend- bank loan has realized such transformation. He high-interest ers and payment for the interests totals private loan suggests that the government should 11 million, almost 50% higher than that lift the restriction of some promising of bank loans of the same kind. The micro-credit companies becoming com- interest rate of such informal lending is mercial banks which can lend money usually as high as 5% to 6% per month, SMEs to private enterprises in a legal manner. and the annual rate can peak at 120%. The preconditions are that these banks Borrowing money at such a high inter- must have a financial license in hand,

22 ten times higher provide their financial statements to the central bank than average on a regular basis and remain under the supervision of the CBRC, so that the interest rate for such loans can be kept at a reasonable level. Besides, such small banks, with high interest rate, low lending quotas and fast circulation of money, should also be allowed into the competition with those giant banks. Li Lixin monopolized suggests that the government should make effort to sectors regulate private lending. Some private capital management companies can register and run on a trial basis salary and new financial cooperatives can be established, in a purpose to pool together the private capital for SMEs to borrow at a reasonable expense. In addition, an effective platform should also be in place for the government, enterprises, financial supervisory institutions, When Will banks and intermediary agencies to share information. Liu Hanyuan, also suggested in his proposal that through an effective reform of the financial system, the “Glass Door” private finance should be developed from a disordered sector to a regularized sector, from the underground to the sunlight. He also suggested that the Lenders Be Broken? Ordinance should be officially issued on a timely basis. The Central Bank drafted this ordinance in 2008, in a By Tang Ye hope to regulate private lending in the form of legislation and bring those underground banks to the sunlight. However, after four times of amendment, this uring the past year, Sinopec’s Maotai spirit scandal ordinance is still waiting to be officially promulgated. and the state-run banks’ unreasonable fee collec- Besides, the government should accelerate the for- tion made reforming the monopolized sectors more mulation and improving process of relevant laws and desired. How to break monopoly is also one of the regulations, so as to ensure the lending rights of cash- hottest topics among the representatives and members at this rich investors and affirm the legality of private lending. Dyear’s NPC and CPPCC. During the NPC and CPPCC, several Threshold for the establishment of private lending representatives and members called for the earliest formulation of institutions must also be correspondently lowered. the operative detailed regulations of the “36 articles for the non- On March 14, Chinese Premier, Wen Jiabao, public economy” in a bid to break monopoly in the monopolized said on the press conference of the Fifth Session of sectors. the Eleventh National People’s Congress that the Wu This year, it’s the fifth time for Wang Chaobin, member of Ying case has received much public attention. This the National Committee of the CPPCC, to raise the “reforming case shows that the development of private finance the monopolized companies” proposal at the NPC and CPPCC. cannot yet meet the requirement of economic and Although the proposal for reforming the state-owned enterprises social development in China. The Chinese compa- and the monopolized sectors is discussed every year, the result is nies, small and micro enterprises in particular, need not satisfactory. “I’ve participated in the NPC and the CPPCC massive funds, yet the banks are not able to meet their for 15 times, during which the proposals for nine-year compul- capital needs, and there is a large amount of idle pri- sory education and for establishing China Securities Regulatory vate capital. He thinks that the government should Commission jointly suggested by other representatives and I have guide and allow private capital into the financial sec- been approved, but only that for reforming the monopolized en- tor, bring private lending into the open and make it terprises is failed,” said Wang. standardized, encourage its development and, at the Wang said that he could not stand the aggressive behaviors same time, put it under strict supervision. Wen also of the state-owned enterprises any longer. On the one hand, the stated that a thorough study must be conducted con- monopolized sectors are questioned repeatedly about their ser- cerning the legal aspects of private lending and the vices, but refuse to make improvement; on the other hand, these principles that should be observed in handling such sectors spend luxuriously but still allege they are in the red. Such issues so that there will be clearly-defined legal refer- a weird phenomenon happens all the time. ence for private lending. He revealed that that the According to the report issued by the Advisory Commit- People’s Bank of China and the China Banking Reg- tee for State Informatization, by the end of 2010, the domestic ulatory Commission are actively considering launch- average broadband speed ranked 71 globally, less than 1/10 of ing a comprehensive reform of private finance on a that of the UK and the US. But the domestic accession expense trial basis, with Wen Zhou being one of the places for for one mb/second is 3-4 times of that of the latter countries. The this reform.

23 “railway giants” have a shocking purchasing list: Qi, Representative of the NPC and Standing over RMB 1,000 for the napkin box, over RMB Member of the Zhejiang Provincial Committee 10,000 for the sensor faucet and LCD TV at of the CPC, said when analyzed the rampant a price 2 times of the market average. Despite monopoly phenomenon. According to Li Dong- luxurious spending, the “railway giants” are sehng, President of TCL, the government is complaining of losses. During 2008 and 2010, supposed to exit from the operative particularly the “railway giants” posted an asset-liability ratio the competitive domains. of 46.81%, 53.06% and 57.44% respectively; by The private enterprises have perceived the the end of the third quarter of 2011, their total opportunities in the monopolized sectors but liabilities had amounted to RMB 2.228856 tril- they have to way to enter into such sectors, and lion with an asset-liability ratio of 59.60%. The they are squeezed out even after entering into Industrial Bank’s report shows that the Ministry such sectors, Liu Yonghao, member of the Na- of Railways will face a capital shortage of RMB tional Committee of the CPPCC and President 800 billion this year and the loss for the high- of the New Hope Group, talked bluntly. There speed railway is particularly heavy due to luxuri- still exist many institutional barriers for the Monopoly is ous procurement and low efficiency. private capital to enter into such monopolized to be broken Even PetroChina and Sinopec are com- sectors as transportation, communication and with looser plaining about losses, but their messy accounts energy. According to Cheng Lu, there are over market access are doubted by the general public. The down- idle 1 trillion private capital in the society and stream sales profits of the two giants in the once the capital enters into the water and power and private petrochemical sector have fully made up the sectors, more revenues will be generated for capital is to be alleged losses in the refining segment and the the society. But the current problem lies in that encouraged refineries are forcing down the prices on pur- as breaking into the monopolized sectors will pose, Zhao Youshan, President of the Petroleum touch upon the distribution of social resources, to enter into Flow Committee of China General Chamber the vested interest parties will impose some re- such domains of Commerce (PFCGCC) pointed out. In this sistance in the course of monopoly breaking. But as railway, way, on the one hand the two giants may pres- this move is a must for breaking monopoly. municipal sure the National Development and Reform However, what’s encouraging is that in this Commission into raising the oil price, and on year’s Government Work Report Premier Wen administration, the other hand they can apply for national sub- Jiabao clearly pointed out that monopoly is to be finance, energy, sidies on the pretext of losses. The overall good broken with looser market access and that pri- communication, performance shows that the oil companies have vate capital is to be encouraged to enter into such education and cashed in tremendous profits. The monopolized domains as railway, municipal administration, companies reap super profits by capitalizing finance, energy, communication, education and medical service. on the preferential policies and resources, but medical service, which will be helpful for creating they fail to assume due social responsibilities, an environment where economies under various which leads to a great deviation between public ownerships will compete fairly and develop mu- expectation and corporate ethics, Liu Guangfu, tually. According to Zhang Ping, Director of the member of the National Committee of the CP- National Development and Reform Commis- PCC and Standing Member of the Central sion, the State Council has recently stressed that Democratic Union, said in an interview with the regarding market access all the departments con- reporters at the NPC and the CPPCC. cerned should formulate specific implementation Many representatives and members of measure to eliminate the monopoly phenomenon the NPC and the CPPCC hold that introduc- and a specific timeline has been nailed down, ing competition into the monopolized sectors which means that all the relevant implementation is a must for breaking monopoly. In 2005, the measures are supposed to be in place by the end of State Council unveiled the “36 articles for the the first half of this year. To quote from Premier non-public economy” and then a revised ver- Wen, this is a non-defied order. All the depart- sion in 2010. Although these two versions ments concerned in the State Council are now explicitly suggest encouraging, guiding and earnestly carrying out work and researching rele- supporting the private capital to enter into such vant implementation measure drafts in a move to monopolized sectors as finance, railway, com- ensure the successful formulation of measures by munication and energy, the “spring” of the non- the end of the first half of this year and to finally public economy has not come yet because of the break monopoly. Lastly, Premier Wen believed absence of feasible implementation measures that the private capital and the non-governmental and too many constraints. The private capital is capital boast of much room for development and adequate enough to enter into the monopolized will play a more important role in the course of sectors such as energy and communication, Cai China’s economic development.

24 Interpretation of Economic Hot Issues —The Chapter of Officials

on diverse monetary and asset allocation for Q: Is China’s banking sector really its foreign exchange reserve investments. profiteering? Since the European debt crisis, our allocation principle has remained stable and with Zhou Xiaochuan, Governor of the a diverse allocation we have continued to People’s Bank of China: Regarding the so- invest in the European market and the mar- called “banks’ profiteering”, I think the dic- kets in the eurozone. As a long-term and tion “profiteering” is exaggerating. From my responsible investor in terms of foreign ex- observation, this issue has sparked off heat- change reserve investments, we’re still con- ed discussions in the economic and financial fident of Europe, which we believe is able to domains, so here I’ll not repeat their opin- weather the debt crisis by its own resources ions. China’s banking sector, as a matter of along with support from the international fact, is confronted with inadequate capital community. In future, China will continue this year, to be exact, capital shortage. But to invest in Europe and the European mar- compared with other sectors, the domestic kets. banking sector did reap more profits last year. Since the Asian financial tsunami, Q: How long will the RMB go for the spread between the domestic deposit Internationalization? and loan benchmarking interest rates has remained around 3%, and the spread was a Li Ruogu, Member of the National little bit higher during the Asian financial Committee of the CPPCC and Governor of the tsunami, approximately 3.6%. However, as Export-Import Bank of China: Expansion is we know during the Asian financial tsunami the first move for the RMB to go global, and the recovery period, the domestic banks and by far the RMB can be used in the sur- were plagued with sweeping losses and the rounding regions. The internationalization gap resulted has not been fully made up of the RMB is irresistible and the course during a couple of the following years. As will be greatly accelerated in the years to the current spread is lower than that dur- come. In the course of internalization, how- ing the financial tsunami, further analysis is ever, China has to be alert to the speculative needed to judge whether the banks’ current risks. high profit should be totally attributed to Although the RMB settlement busi- the high spread. ness develops rapidly, the settlement proportion between imports and exports is out of Q: As the European debt crisis equilibrium. To have more usage outside of is not ended yet, will China halt China in future, the RMB has to see more investments in Europe? smooth circulation in foreign countries, which means that the overseas institutions Yi Gang, Vice Governor of the People’s and individuals are supposed to be more Bank of China: In general, we are for the willing to hold RMB with the cost for hold- string of polices adopted by the European ing RMB to be cut and the RMB backflow Union, the European Central Bank and the channels to be expanded. This requires a International Monetary Fund in response prudent reform of the capital and financial to the European debt crisis. And China account management based on the principle has also made a lot of efforts. As for invest- of “step-by-step advancement and temperate ments, it is widely know that China insists relaxation”.

25 amount, but after going public, many of them do not genuinely respect the investors’ willingness. On the contrary, they make unplanned and blind investments without We estimate that China’s approval from the Board of Directors; worse still, the profits from investments lead to foreign trade will be able no dividends or pseudo dividends, such as to achieve the 10% annual share allotment and placing, which are not growth target proposed by dividends in the real sense but merely a Premier Wen Jiabao in the game playing with investors. Government Work Report, but Q: When will the private capital it needs great efforts. become transparent? Li Wuwei, Vice Chairman of the CPPCC and Deputy Vice Chairman of the Revolutionary Committee of KMT: For many years, the private capital has been contacted the SMEs and the financing cost hits a surprisingly high of 40%, which contains huge risks. Since the big banks are reluctant to finance the SMEs, rather than forcing the private capital to slinkingly contact the SMEs, it’s better to make the private capital Q: Will China’s foreign trade achieve transparent and thus to break monopoly in the 10% growth target in 2012? the financial domain. At the same time, however, risks need to be prevented by vir- Chen Deming, Minister of Com- tue of standardization. merce: Recently, China’s foreign trade has been decreasing further due to deteriorat- Q: Will the old-age pension go into ing internal and external environment the market? for the development of foreign trade — consumption in Europe is impacted by the Yin Weimin, Human Resources and deepening and spreading financial crisis, in Social Security Minister: Recently, the gen- particular the European debt crisis; various eral public has been highly concerned about domestic costs are on the rise. Therefore, whether the old-age pension will go into we estimate that China’s foreign trade will market. In line with the provisions under be able to achieve the 10% annual growth the Social Insurance Law, the old-age target proposed by Premier Wen Jiabao pension may preserve or increase its value in the Government Work Report, but it through investments and operation. As needs great efforts. In order to achieve this money jointly paid by the companies and arduous objective, we may focus on the individuals, the old-age pension secures following aspects: first, to stabilize growth; people’s livelihood and “security comes second, to adjust the trade structure; third, first” therefore serves as the principle. The to promote balance. 12th Five-Year Plan has also raised explicit requirements in terms of investments & Q: Will China’s stock market end the operation as well as value preservation & non-dividend phenomenon? increasing of the old-age pension. Re- gardless of the investment and operation Li Daokui, Advisor of the Monetary pattern, the old-age pension, with secu- Policy Committee of the People’s Bank of rity ensured, should be granted during a China: China’s stock market is ought to certain period. As opinions differ greatly be reformed and the biggest problem of among social experts and the general pub- the stock market is the far-from-being- lic, the Ministry of Human Resources and sound construction of institutions, which Social Security needs to timely put for- in essence means that the listed companies ward proposals after intensively collecting lack satisfactory quality and behaviors. The opinions and conducting researches along listed companies require a large financing with feasibility studies.

26 Agriculture: Proposals on Moderately Increasing Feed Grain Import and Export, and Reasonably Balancing Import Quotas (by Liu Yonghao) Control on the import and export of corn can be moderately loosed to increase the trade volume of corn. The added-value of grain will promote the development of processing industries of meat, eggs, milk and other food, increase the income of farmers, improve the overall competency of China’s agricultural products, and realize scale business of modern agriculture. In this way, the adequate supply of meat, eggs and milk will be guaranteed, production costs reduced, and food prices I Suggest My Proposal stabilized. The import and export quotas of corn should —The Chapter of Deputies be abolished and preferential tariff policy be put in place to spirit of the “36 Rules on Non-public support the development of industries Development of New Energy Economy” and the “New 36”. Secondly, producing meat, eggs and milk. Industry (by Pan Qi) differential regulatory policies should Environment: Proposals on Firstly, relevant laws and regula- be formulated for small and medium- Implementing and Strengthening tions should be enhanced and economic sized banks. The regulatory authori- the PM2.5 (Particulate Matter) incentive. Secondly, we should reinforce ties should place different regulatory Environment-protecting the support system of new energy tech- policies on small and medium-sized Measures (by Su Rong) nological innovation, and give more financial institutions from that of large- support to the new energy enterprises scale banks, avoiding the “one size fits Firstly, the regulation system on with independent intellectual property all” regulatory policy. In terms of tax PM2.5 reduction should be improved. rights. Thirdly, we should encourage policies, business tax on loans to SMEs We should formulate and implement as private capital to invest in the field of should be moderately deducted or ex- soon as possible the National Preven- new energy. Fourthly, we should ac- empted, to stimulate small and medi- tion Measures on Dust Pollution and celerate the construction of smart grid, um-sized banks’ enthusiasm in serving the National 12th Five-Year Program and strengthen the unity and coordina- the SMEs. on Clean Air, and establish evaluation tion of new energy generation expan- system on the PM2.5 in the atmo- Traditional Chinese Medicine: sion planning and power network plan- sphere. Secondly, we should build up Proposal on Paying Attention ning. Fifthly, to encourage China’s new monitoring system of atmospheric pol- to the Shortage of Chinese energy industry to go global. lutants such as PM2.5. Thirdly, treat- Herbal Medicine Resources ment of motor vehicle exhaust should Finance: Proposals on Further and Ensuring the Sustainable be intensified. Fourthly, enterprises’ Developing Small and Medium- Development of Traditional emissions of volatile organic compounds Sized Financial Institutions to Chinese Medicine (TCM) should be strictly controlled. Reward Support the Real Economy (by Industry (by Wang Chengde, and punishment should be carried out Liu Zhongyuan) Wong Guoxing, Dai Xiuying, and in accordance with the performance of Xu Yong) Firstly, private capital should be enterprises. encouraged to invest in establishing First, the government should play Energy: Proposals on Promoting small and medium-sized financial in- a leading role in ensuring the sustain- the Healthy and Sustainable stitutions, thus carrying out the access able development of Chinese herbal

27 medicine resources. Second, we should conduct legislative research on ince H.E. Courtenay Rattray the management system of wild herbs as soon as possible, speed up re- came to Beijing as the ambas- vising and improving “The Regulations”, enhance wild herbs resources sador of Jamaica, he have been management, and achieve sustainable use of wild herbs resources. concerning the changes of Third, we need to carry out research on substitutes for rare and en- China, especially during two sessions dangered Chinese herbal medicine. Fourth, we need to strengthen Stime every year. During the interview systematic studies on rare and endangered Chinese herbal medicine. from China’s Foreign Trade magazine, Fifth, we need to produce Chinese herbal medicine in a more scien- he thought that Chinese govern- tific way to meet the market demands. ment’s decision to reduce this year’s Old-age Welfare: Proposal on Encouraging and GDP target to 7.5% is to be applaud- Supporting the Development of Private Welfare ed, it recognizes that China cannot Institutions to Promote the Development of Social Aged continue to record double digit eco- Welfare Industry (by National Association of Industry and nomic growth without incurring huge Commerce) costs to its environment and the rapid depletion of its natural resources. First, we need to develop a set of sound service standards for Q: After having listened social aged welfare system. Second, we need to encourage the estab- to the Report from the CPPCC lishment of diversified private welfare institutions. We should inspire Chairman Jia Qingling and the private capital to enter the aged welfare industry, encourage the estab- government Work Report from lishment of diversified community aged welfare organizations. Third, Premier Wen Jiabao, what do we need to strengthen support for private welfare institutions. We you comment on them? should make related preferential policy for construction land used by private welfare institutions, reduce their income tax and administra- A: I paid close attention to the tive fees, and ensure the aged welfare service projects of large scale, policy pronouncements made by Pre- good prospect and urgent market need enjoy necessary loan discount mier Wen Jiabao that related to the and fund subsidy, etc. management of the economy and the Real Estate: Proposal on Innovating Housing Security goals for the remainder of the 12th Five System and Mechanism and Establishing A Multi-level Year Plan period. The statements made Housing Security System (by Chinese Peasants’ and by both the Premier and the CPPCC Workers’ Democratic Party Central Committee) Chairman on the need to adopt polices that promoted social harmony were also First, we need to actively improve the multi-level housing supply of interest. Another area of importance, system. Second, we need to establish a specialized operating institu- which was addressed by them both, tion responsible for the construction and management of subsidized centered on the need to give impetus housing. Third, we need to further broaden the raising channels of to cultural reform and development. I subsidized houses, stimulate the stock market, such as, the small view culture as the lifeblood of a na- property right houses, and reduce government’s input of land re- tion, as it supports the cohesiveness of a sources. Fourth, we should increase large-scale real estate enterprises’ society and country. involvement in the construction of subsidized housing. Fifth, we need Q: China has scaled down to establish an index system to evaluating the quality of subsidized its GDP target for the first time in housing. Sixth, we need to improve the regulation level to supervise seven years with its GDP target the allocation of subsidized housing resources. for 2012 at 7.5 percent, lower by Charity: Proposal on Information Publicity of Public 0.5 percent than last year. What Charitable Organizations (by Wang Ming, Zhang do you think of “the target of Hongming, He Jiesheng, Liu, Dajun, and Wu Nengyuan) GDP for 2012”? First, we need to issue and improve relevant laws and regulations A: The government’s decision to as soon as possible, and let these organizations exactly specify all the reduce this year’s GDP target to 7.5% major systems of charity information publicity. Second, we need to is to be applauded. It recognizes that strengthen the public supervision; to enhance industry regulation and China cannot continue to record double accountability in the field of public charity, and to establish an effec- digit economic growth without incur- tive self-discipline system. Third, we need to foster and develop some ring huge costs to its environment and supportive organizations, such as, independent third-parties. These the rapid depletion of its natural re- professional supportive organizations are responsible for the supervi- sources. sion, evaluation and accountability of charity information publicity; I am in favor of the emphasis that we also need to improve the professional capacity of these supportive will be placed on achieving more sus- organizations, such as, independent third-parties. tainable and innovation-driven growth, which will help China to avoid the so-

28 More Sustainable and Innovation-Driven Growth of China

By Audrey Guo

called middle-income trap. With the urbaniza- idealists with a utopian vision of reform who tion program that is currently underway there do not accept that, from a pragmatic per- will be a need to create more urban job oppor- spective, it is sometimes better to press ahead tunities and to better protect the environment. with what is achievable and can actually be In this regard, Premier Wen is on the correct implemented. Such persons would prefer to path in his call for the development of strategic hold-up the entire process indefinitely while emerging industries, which will mostly be in waiting for a perfect outcome. To quote Vol- the high value-added services sector. At the taire, “one should not allow the perfect to be end of the day, it is far better for an economy’s the enemy of the good”. GDP to be based on high quality growth, Q: What do you think on Premier rather than unsustainable, low value and fast- Wen’s saying of “expanding domestic H.E. Courtenay Rattray, paced growth. An added advantage is that this demand, particularly consumer Ambassador of Jamaica will serve to reduce trade tensions. to China demand”? Q: In the two sessions of 2012, A: what proposals were you interested in? Together with fighting inflation, I Why? view the expansion of domestic demand as one of the government’s most important economic A: I was interested in the commitment to policy goals. Both goals are inter-related, as address the trend of widening income inequal- high inflation runs counter to the objective ity and the proposal to expand social safety net of expanding domestic demand. There is no programs. The development of a broader social greater penalty that can be imposed on the safety net and the creation of policies that favor livelihood of a society than inflation; particu- the consumer over the producer will not only larly food price inflation, as this disproportion- improve people’s welfare, but assist the gov- ately affects the poor. ernment to rebalance the economy. However, The need for China to rebalance its increased wages and salaries are not by them- economy by moving away from its reliance on selves sufficient to guarantee the expansion of exports and fixed asset investment and towards domestic consumption. I think the government domestic consumption is acute. The slowdown realizes that efforts must also be made to re- in the world economy and the depressed de- duce the need for households to maintain high mand in China’s main export markets make precautionary savings. this task urgent. However, this structural shift Q: Have you heard the discussion will not be accomplished unless household in- of “imperfect reforms are to be comes are improved. One way of achieving this preferred to a crisis caused by no would be to advance the process of liberalizing reforms”? What’s your opinion on it? interest rates, which cause distortions in the financial sector and give rise to the problem of A: I am aware of the discussion regard- negative real interest rates. Thankfully, the re- ing the nature and pace of the reform pro- cent reduction of the CPI to 3.2% in February cess. This is natural, as whenever there are has brought about a return to real interest rates. far-reaching reforms that affect the structure The policy dilemma facing the government, of a society and economy there will always be however, is that as inflation continues to come vested interest groups that will try their best down and monetary policy is loosened, deposit to retard, or completely derail, the process. interest rates will also fall thereby reducing do- At the opposite extreme, there will be those mestic consumption.

29 Necessary Adjustments for Long Term Growth By Guo Yan

Q: What do you comment on the Q: In the two sessions of 2012, Report from CPPCC President Jia what proposals are you interested in? Qingling and the government work Why? report from Premier Wen Jiabao? A: We are particularly interested in the A: As usual the reports are quite compre- proposals that address the issues of balancing hensive. While they take stock of achievements the need for continued growth and the impera- and short comings of the previous year, they also tive of keeping inflation under control. We are try to indicate the way forward for the coming also interested in watching how China proposes months. I am quite impressed by the way the to expand its safety net and social security mea- leaders frankly identify the challenges facing the sures for the vulnerable groups. China is also H. E. Mr. Munshi Faiz nation, the Party and the government and the planning to invest a lot on climate change and Ahmad, Ambassador of way they try to work out appropriate measure environmental protection issues which are also Bangladesh to China to address these challenges. They appropriately of special interest to us. Besides, we are also note challenges posed by the continued impact watching closely how China adjusts her Foreign of global recession and financial crisis, slowing Policy to further strengthen her relations with growth rate, slowing growth of exports, contin- neighbors. Our interest in these matters arises ued inflationary pressures, income gap between from the simple reason that we face similar coastal and inner provinces and between urban developmental challenges and can learn from and rural populations, food security, the question China in all these areas. We can also benefit of providing adequate social security for vulner- tremendously by cooperating with China able groups including the poor, the children, in combating the effects of climate change the aged and migrant workers. At the same through mitigation and adaptation measures time they rightly emphasize restructuring of the as well as by capacity building. We also seek to economy and the growth model, expansion of benefit from China’s new enhanced attention to domestic demand, more investment in the inner/ relations with neighbors and further strengthen western provinces, new measures to increase the cooperation with China in all fields. rural income, better supervision of allocation/ Q: In the government report, reallocation of land use, more investment in so- Premier Wen mentioned to “expand cial security as ways of continuing and further domestic demand, particularly deepening the reforms and opening up aimed at consumer demand”. What do you think achieving scientific development and building of of this target? a more harmonious society. A: Q: China has scaled down its Not I alone, but most observers and GDP target for the first time in seven experts would agree with Premier Wen Jiabao years with its GDP target for 2012 at that expanding domestic demand is the most 7.5 percent, lower 0.5 percent than last important requirement for restructuring China’s year. What do you think of “the target economic growth model. The increasing cost of GDP for 2012”? of production in China in view of two decades of double digit growth coupled with declining A: Lowering the growth target for 2012 purchasing capacity of the developed countries to 7.5 percent, I think, is a very rational deci- of the west in the face of global recession and sion. This not only seeks to make necessary financial crisis have resulted in slowing down of adjustments to meet immediate realities but China’s exports, which is expected to continue also appears to be a visionary measure aimed at for a considerable period. China’s growth in ensuring a consistent and sustainable long term the past two decades depended mainly on its growth trajectory. exports and the jobs and demand created by

30 the export oriented industries. But this is now threatened The Right Time for and the most realistic way forward is to increase domestic demands, both for consumer and capital goods, if China wants to continue growing at a significant pace over a long period of time. Moreover, the unequal development and income gaps between different regions of China and different sections of population, the huge gap between China’s percapita GDP and that of the developed countries and the new challenges created by climate change also provide opportunities for new investments and growing potentials for increasing domestic demand over a long period of time. Therefore, Premier Wen Jiabao’s emphasis H.E. Mr. Libor Secka, Czech on expansion of domestic demand is very appropriate and Ambassador in China wise. Q: Have you heard this discussion of “imperfect reforms are to be preferred to a crisis his is the second time that caused by no reforms”? What’s your opinion? the Czech ambassador H.E. Mr. Libor Secka received A: I haven’t particularly noted that discussion. How- the interview from China’s

ever, I fully agree with the principle behind the discussion. Foreign Trade magazine concerning

While there are challenges, while there are targets to be CPPCC&NPC, he noted that China Change A achieved, there is no alternative but to proceed with plans T lowered its target of GDP from 8% to of action. While a particular plan or course of action proves 7.5%, this attitude is required given inadequate under given situations at a certain time, reforms global turbulences and a pressing de- and adjustments become unavoidable. All our plans, actions mand for speeding up the economic reforms and adjustments need to be carefully drawn up after reforms and structural improvements weighing the pros and cons, after appropriate assessment of after decades of enormous growth rate. existing conditions etc. However in spite of all our care and And he agreed that the right time for a caution mistakes will be made, inadequacies will remain. change (especially in economic reforms) But under no circumstances “inaction” or “no reforms” can has come for China and cannot be wast- be an option. ed in endless discussions. Q: In 2012, what’s you expectation on the Q: After listened to the bilateral business and trade? Which fields will government work report from your Embassy focus on this year? Premier Wen Jiabao, what do you By Leo ZhaoBy think of it? A: We expect bilateral business and trade between Bangladesh and China to continue to grow at a significant A: From the CPPCC Work Report pace during 2012. The momentum of growth achieved I understood the message and focus given over the last three years is expected to continue. We are to the ongoing economic reform and also expecting more Chinese new investments into Ban- sustainable development of the country, gladesh. The economic cooperation between our two cultural reform, promoting of the social countries has a dynamism of its own and will not require harmony in the society and boosting of a lot of interference from this Mission. We in the embassy the Cross-Strait exchanges. would like to focus more on enhancing cooperation in the The government work report pre- field of culture and further promoting people to people sented by the Chinese Premier Wen Jia- contacts during the year ahead. bao put an emphasis on various economic Q: For CCPIT in 2012, do you have some targets and goals for the future period in suggestions or proposals in progress? order “to make progress while maintaining stability”. For the first time China is plan- A: We hope that in 2012 the CCPIT could take ning to lower its annual economic growth steps to send a high level delegation to Bangladesh as below 8% (7,5%), which indicates the way well as arrange to host one or two business delegations towards sustainability and focus on quality from Bangladesh’s top Chambers like FBCCI, MCCI, of the development. It is also important to Dhaka Chamber or Chittagong Chamber. At the same note the attention given by the Premier to time we hope CCIPT could help this Mission in the the inflation control, creation of new jobs, coming months to organize an investment seminar for narrowing of the income gap, social secu- promoting increased investment by China’s investors rity, environment. into Bangladesh.

31 China’s CPPCC&NPC every year are also in big concern of foreign officials and businessmen in China.

Q: Just as you mentioned, China has future sustainable development. The cost of delaying scaled down its GDP target for the first this process could become too high later on. time in seven years with its GDP target for Q: In the government report, Premier 2012 at 7,5 percent. What do you think on Wen mentioned to “expand domestic the meaning? demand, particularly consumer demand”. What’s your point of view on that? A: As I mentioned before, setting this target shows the importance given by the Chinese gov- A: I think, this statement and focus goes ernment to the sustainability and quality of the indeed in the right direction, if China wants to economic development, which has a direct link to achieve its long-term targets. There is clearly un- the improvement of the quality of life of the society. tapped potential for development for the future and I think that this attitude is required given global the solution for many serious issues the government turbulences and a pressing demand for speeding up is facing now. the economic reforms and structural improvements Q: In 2012, what’s your expectation on after decades of enormous growth rate. According the bilateral business and trade? Which to the opinions of many experts, there is a call for a field your Embassy will focus on this strategic shift in priorities if China wants to trans- year? form itself into a modern, high-income economy and avoid the so-called middle-income trap. A: Last year we achieved a new record high Q: In the two sessions of 2012, what bilateral trade turnover of 20,5 billion USD, the proposals are you interested in? Why? result of the annual growth of about 23%. We hope that this year will bring again new record A: From the economic aspect of society, my achievements, in particular in our exports, since interest is in proposals to develop the real economy. this is our main task. Beside this we expect more Coming from a small-sized country with similar investment cooperation and projects in both targets my point of view is close to proposals call- ways, in China and the Czech Republic as well. ing for the support for small and medium-sized We are trying to support this process and guide enterprises, strengthening and further reforming of both Chinese and Czech companies to the pri- the financial system and focusing on environmental ority sectors and locations. This leads us to plan protection. From the social policy, I am very much for this year promotion activities and support interested in new steps toward development promo- for Czech exporters, researchers and innovators tion in regions with ethnic minorities and building in biotechnologies, nanotechnologies, aircraft of a modern social security system. industry, advanced mining technologies, but also Q: During the government report, the consumer goods and luxury items. word “reform” was appeared nearly 70 Q: For CCPIT in 2012, do you have times. Before there was a discussion of some suggestions or proposals in “imperfect reforms are to preferred to a progress? crisis caused by no reforms”. Could you comment on that? A: Our cooperation with the CCPIT so far has been intensive and friendly, therefore my sin- A: I tend to agree with this statement because cere wish is to continue in this trend. We sincerely of the feeling that the right time for a change (espe- hope that CCPIT will actively support and help us cially in economic reforms) has come and cannot be to organize some business missions to the Czech wasted in endless discussions. There has been a lot of Republic, as well as to China. I also think that improvement in the way of reform preparation, test- both sides should be more active in promotion and ing and implementing in China during last decades, information sharing about our countries. Finally, so the risk of imperfect reform is most probably I would like to wish the CCPIT a very successful smaller than postponement of the steps needed for year 2012!

32 The Challenges of China

By Alberto Alonso Díaz

irst of all, I want to say that I have will contribute less to the growth of the GDP been living in China three years and (Gross Domestic Product). a half and in September when it will The Chinese Government affirms that be my fourth year, I will go back to the communist system is better than the west- my country, Spain. In this time, I have learnt ern system and it is right in the aspect that its Fsome things about China and everything I leaders can take the right decisions without have learnt has been by trying to understand thinking about upcoming elections. Chinese culture and way of thinking. The measures to be held should be the Surely when I leave, I will follow China’s reduction of heavy industry, which has a prob- Mr. Alberto Alonso Díaz, current affairs from wherever I am, because it lem of “over capacity” and its maintenance can Commercial Counsellor is fascinating. be very costly and promote the consumption of the Embassy of Spain Since the China’s NPC and CPPCC of goods and services. in China sessions 2012 have just concluded, I want to The development of services is also an give my view about some of the present prob- aim to be achieved. lems that concern the immediate future of China’s surplus on foreign currencies China. should have made that, in this crisis, China The greatest problems of China are to had invested more abroad and even though fight against corruption and to decrease re- this has happened, it has not happened in a gional differences. From citizens’ point of higher level because the SOEs, who have a view, the greatest problems are food safety favourable environment in China, don’t feel and social differences. comfortable in the legal framework of other In 2008 when the international econom- countries. ic crisis begun, China obtains a fast recovery To fight against inflation, there is a need with a stimulus package and maintaining the to liberalize more the imports on agricultural flow of credit for the SOEs (State-owned En- products, the fluctuations on raw materials terprises). The Chinese Government required will continue in the following years. in all the forums not to use the crisis as an ex- To fight against social injustice, more in- cuse to apply protectionist measures to world vestment is required in health and education trade. in the less wealthy areas and the implementa- In this crisis, Europe and USA have ap- tion of fiscal policy is needed to redistribute plied the opposite economic measures. USA the wealth. has applied expansive measures and Europe The completion of Doha Round would has concentrated on the reduction of the pub- be desirable. But, unfortunately, I don’t think lic deficit. The results, at the moment, are that that will happen soon. USA has reduced its unemployment and is Another scope will still be the supply of starting to leave behind the crisis, but on the raw materials (energy, minerals, etc.). other hand, Europe is going into recession The Yuan has revalued against other cur- again and its unemployment is increasing. rencies and I think that a higher appreciation China can learn from these examples. In would be very harmful for China. last January and February, China had, for the I see a very well prepared youth and in first time, a trade deficit. This had not hap- my contact with the Administration, young pened in the last 22 years. It means that a new government officials and well prepared, who economic cycle is beginning. clearly know what they want for their country, Chinese leaders know that foreign in- are a guarantee for the future of China. vestment, which until now was concentrated To conclude, I must say that I came to on the investment in productive means, from Beijing at the end of Olympic Games 2008, now on will turn into investment to access to and I would like to see that clear blue sky I saw Chinese domestic consumption and the exports when I arrived.

33 CONOMY E China 2030: Building a Modern, Harmonious, and Creative High-Income Society By the World Bank Robert Zeollick, Governor of the World Bank.

n February 27, the World China on its current growth trajectory recalibrate the role of public resources, Bank released a report were inspired by Deng Xiaoping who introduce modern corporate governance in Beijing which recom- played an important role in building practices including separating owner- mended that China needed consensus for a fundamental shift in ship from management, and implement to redefine the government’s role, alter the country’s strategy. After more than gradual ownership diversification where theO structure of state enterprises and 30 years of rapid growth, China has necessary), private sector development gradually allow market-set interest rates reached another turning point in its de- and fewer barriers to entry and exit, and in order to sustain its economic growth velopment path when a second strategic, increased competition in all sectors, in- over the next two decades. and no less fundamental, shift is called cluding in strategic and pillar industries. By any standard, China’s economic for. The 12th Five Year Plan provides In the financial sector, it would require performance over the last three decades an excellent start. This report combines commercializing the banking system, has been impressive. GDP growth its key elements to design a longer-term gradually allowing interest rates to be averaged 10 percent a year, and over strategy that extends to 2030. More set by market forces, deepening the 500 million people were lifted out of importantly, it focuses on the “how,” not capital market, and developing the legal poverty. China is now the world’s larg- just the “what.” Six important messages and supervisory infrastructure to ensure est exporter and manufacturer, and its emerge from the analysis: financial stability and build the credible second largest economy. First, implement structural re- foundations for the internationaliza- Even if growth moderates, China forms to strengthen the foundations for tion of China’s financial sector. In the is likely to become a high-income econ- a market-based economy by redefining labor market, China needs to accelerate omy and the world’s largest economy the role of government, reforming and phased reforms of the hukou system to before 2030, notwithstanding the fact restructuring state enterprises and banks, ensure that by 2030 Chinese workers that its per capita income would still be developing the private sector, promoting can move in response to market signals. a fraction of the average in advanced competition, and deepening reforms in It also needs to introduce measures to economies. the land, labor, and financial markets. increase labor force participation rates, But two questions arise. Can As an economy approaches the technol- rethink wage policy, and use social se- China’s growth rate still be among the ogy frontier and exhausts the potential curity instruments (pensions, health, highest in the world even if it slows for acquiring and applying technology and unemployment insurance) that are from its current pace? And can it main- from abroad, the role of the government portable nationwide. Finally, rural land tain this rapid growth with little disrup- and its relationship to markets and the markets need to be overhauled to pro- tion to the world, the environment, and private sector need to change fundamen- tect farmer rights and increase efficiency the fabric of its own society? tally. While providing relatively fewer of land use, and policies for acquisition This report answers both questions “tangible” public goods and services of rural land for urban use must be in the affirmative, without downplaying directly, the government will need to thoroughly overhauled to prevent urban the risks. provide more intangible public goods sprawl, reduce local government depen- By 2030, China has the potential and services like systems, rules, and dency on land-related revenues, and ad- to be a modern, harmonious, and creative policies, which increase production ef- dress a frequent cause of complaint from high-income society. But achieving this ficiency, promote competition, facilitate farmers. objective will not be easy. To seize its specialization, enhance the efficiency of Second, accelerate the pace of in- opportunities, meet its many challenges, resource allocation, protect the environ- novation and create an open innovation and realize its development vision for ment, and reduce risks and uncertainties. system in which competitive pressures 2030, China needs to implement a new In the enterprise sector, the fo- encourage Chinese firms to engage in development strategy in its next phase of cus will need to be further reforms of product and process innovation not only development. The reforms that launched state enterprises (including measures to through their own research and develop-

36 ment but also by participating in global social services, and portable social secu- over the past three decades. By continu- research and development networks. rity. These policies will be critical in re- ing to intensify its trade, investment, China has already introduced a range versing rising inequality, helping house- and financial links with the global econ- of initiatives in establishing a research holds manage employment-, health-, omy over the next two decades, China and development infrastructure and and age-related risks, and increasing will be able to benefit from further is far ahead of most other developing labor mobility. China’s relatively high specialization, increased investment op- countries. Its priority going forward is social and economic inequality (some portunities and higher returns to capi- to increase the quality of research and dimensions of which have been increas- tal, and mutually beneficial flow of ideas development, rather than just quantity. ing) stems in large part from large rural- and knowledge. As a key stakeholder in To achieve this, policy makers will need urban differences in access to jobs, key the global economy, China must remain to focus on: increasing the technical public services, and social protection. pro-active in resuscitating the stalled and cognitive skills of university gradu- Reversing this trend requires three co- Doha multilateral trade negotiations, ates and building a few world-class ordinated actions: delivering more and advocate “open regionalism” as a feature research universities with strong links better quality public services to under- of regional trading arrangements, and to industry; fostering “innovative cities” served rural areas and migrant popula- support a multilateral agreement on in- that bring together high-quality talent, tions from early childhood to tertiary vestment flows. Integrating the Chinese knowledge networks, dynamic firms, education institutions and from primary financial sector with the global financial and learning institutions, and allow health care to care for the aged; restruc- system, which will involve opening the them to interact without restriction; and turing social security systems to ensure capital account (among other things), increasing the availability of patient risk secure social safety nets; and mobilizing will need to be undertaken steadily and capital for startup private firms. all segments of society — public and with considerable care, but it will be a Third, seize the opportunity to “go private, government and social organi- key step toward internationalizing the green through a mix of market incentives, zations — to share responsibilities in renminbi as a global reserve currency. regulations, public investments, indus- financing, delivering and monitoring Finally, China must play a central role trial policy, and institutional develop- the delivery of social services. in engaging with its partners in mul- ment. Encouraging green development Fifth, strengthen the fiscal system tilateral settings to shape the global and increased efficiency of resource use by mobilizing additional revenues and governance agenda and These six prior- is expected to not only improve the level ensuring local governments have ade- ity reform areas lay out objectives for of well-being and sustain rapid growth, quate financing to meet heavy and rising the short, medium, and long term, and but also address China’s manifold envi- expenditure responsibilities. Many of policy makers need to sequence the re- ronmental challenges. The intention is the reforms proposed in this develop- forms within and across these areas ap- to encourage new investments in a range ment strategy — enterprise and finan- propriately to ensure smooth implemen- of low-pollution, energy-and resource- cial sector reforms, green development, tation and to reach desired outcomes. A efficient industries that would lead to equality of opportunity for all — have successful outcome will require strong greener development, spur investments implications for the level and allocation leadership and commitment, steady in related upstream and downstream of public expenditures. Over the next implementation with a determined will, manufacturing and services, and build two decades, the agenda for strengthen- coordination across ministries and agen- international competitive advantage in ing the fiscal system will involve three cies, and sensitive yet effective manage- a global sunrise industry. These poli- key dimensions: mobilizing additional ment of a consultation process that will cies have the potential to succeed, given fiscal resources to meet rising budgetary ensure public support and participation China’s many advantages — its large demands; reallocating spending toward in the design, implementation, and market size that will allow rapid scaling social and environmental objectives; and oversight of the reform process. And up of successful technologies to achieve ensuring that budgetary resources avail- since the global economy is entering a economies of scale and reduced unit able at different levels of government dangerous phase and China itself will costs, a high investment rate that will (central, provincial, prefectural, county, be transitioning from middle-income permit rapid replacement of old, inef- township, village) are commensurate to high-income status, the govern- ficient, and environmentally damaging with expenditure responsibilities. With- ment will need to respond to a variety capital stock; its growing and dynamic out appropriate fiscal reforms, many of of risks, shocks, and vulnerabilities as private sector that will respond to new the other reform elements of the new they arise; in doing so, it must hold fast signals from government, provided it development strategy would be difficult to the principle that policy responses to gets access to adequate levels of finance; to move forward. short-term problems should uphold, not and a relatively well-developed research Sixth, seek mutually beneficial rela- undermine, long-term reform priorities. and development infrastructure that can tions with the world by becoming a pro- address pressing global economic issues be harnessed to reach and then expand active stakeholder in the global economy, such as climate change, global financial the “green” technology frontier. actively using multilateral institutions stability, and a more effective interna- Fourth, expand opportunities and and frameworks, and shaping the global tional aid architecture that serves the promote social security for all by facilitat- governance agenda. China’s integration cause of development in poor nations ing equal access to jobs, finance, quality with the global economy served it well less fortunate than China.

37 CONOMY E Manufacturing Wages are Rising

By Kelvin Lau, Wei Gu, Rui Wang, Stephen Green

• Manufacturing wages are up by an average 10% this year, our survey suggests • Majority of clients see output per worker rising faster than wages; productivity growth is keeping pace • More firms are opting for capital investment to boost productivity, as opposed to moving locations • Orders situation does not look too bleak; CNY appreciation expectations are alive and kicking

SUMMARY

Wages are still rising in China’s manufacturing • Formal wage negotiations are still uncommon, but heartland, albeit at a slower pace than last year, according companies are facing stricter enforcement of social insur- to the results of our third annual survey of clients about ance requirements. wage trends in the Pearl River Delta (PRD). • Investing in capital equipment to replace workers Conducted after the Lunar New Year holiday in is by far the most common response to labour shortages. late January, the survey received an overwhelming 204 • More companies are considering moving inland responses – all from Hong Kong manufacturers, big and than are considering leaving China. small, who operate in the PRD. We would like to thank • Higher productivity helps to explain (and absorb) the clients who took part, and the Standard Chartered higher wages; the majority of companies say output per relationship managers who facilitated everything. worker has risen faster than wages. Our main findings are as follows: • More companies saw orders improve than decline • Wages in the PRD are up 10% this year, less than over the past six months; the outlook for the next six last year’s 11% and the 15-20% rates sometimes reported months is not too bleak. in local media. • Most companies expect the Chinese yuan (CNY) • Most respondents are seeing labour shortages at to appreciate 0-5% against the US dollar (USD) this least as bad as those seen last year. year.

Chart 1: Did wages go up this year? Chart 2: How is the labour shortage compared to 2011? No. of respondents (average % increase in brackets) No. of respondents

Source: Standard Chartered Research Source: Standard Chartered Research

38 Chart 3: What was the impact of the mandated minimum Chart 4: Have you negotiated wage increases in the past wage hikes? six months, or do you plan to? No. of respondents No. of respondents

Source: Standard Chartered Research Source: Standard Chartered Research

Chart 5: Were social insurance payments more strictly Chart 6: Has per-worker output risen more than wages, enforced? in your opinion? No. of respondents No. of respondents

Source: Standard Chartered Research Source: Standard Chartered Research

Labour shortages – No let-up compared to the same time last year (Chart 2; note that in some charts, total responses Another year of low-double-digit add up to less than 204 because not all re- increases in wages spondents answered the question). Of the 204 respondents, 113 (55%) Policy push to create better employ- said they raised their workers’ hourly wages ers continues just before or after the Lunar New Year, by Most of the employers we interviewed an average of 10.4% and a median of 10%. are already paying above the local minimum Increases ranged from 5-30%. Our forecast wage. Actual monthly salaries are usu- for official CPI inflation in 2012 is 2%; even ally CNY 2,000+, compared to the newly factoring in a more realistic level of price revised minimum wage of CNY 1,500 in SHENZHEN appreciation, say 5%, real wages should Shenzhen (up from CNY 1,320), effective WAS ONE OF still go up in 2012. This is supported by the 1 February. The other cities in the PRD are fact that 66 of the remaining 91 survey re- set to follow. Guangzhou, for example, is THE FIRST spondents said they plan to raise wages this expected to increase its minimum wage to CITIES TO year, by an average of 9.0% (Chart 1). This CNY 1,470 from CNY 1,300, according to INCREASE compares with an average of 11% in 2011. recent media reports. A 13% increase would THE MINIMUM Only 25 companies said they had no plans be in line with the annual wage-hike target to raise wages this year. In line with still- set under the government’s 12th Five Year WAGE THIS evident wage pressure, only 30 respondents Plan. YEAR. considered it less difficult to find workers Only 15 of our 204 respondents (7%)

39 CONOMY

E considered the impact of the mandated numbers. Asking managers will provide minimum wage increases to be “huge”. only an impressionistic response, but we About half of the sample said the new asked anyway. As Chart 6 shows, the ma- mandates forced them to raise wages more jority (almost 60%) of our respondents said than they had planned, while 83 reported their per-worker output has risen more than that wages would have gone up anyway wages. A large minority, however, reported (Chart 3). that this was not the case, which raises Formal wage negotiations with labour some concern about what is happening unions or worker representatives remain here. Given this split in opinion, we would rare – 18 clients of the 204 we surveyed (9%) expect some – but not all – of the increased had engaged in negotiations in the past six wage costs to spill over into factory gate months. Half of the employers accepted a prices. 5-10% raise, while the other half accepted There is no surprise, then, that com- a 10-20% raise. Only 28 companies (14%) panies are responding to labour shortages think they will have to hold such talks this by investing in more capital equipment (131 year (Chart 4). respondents of 204, or 64%), to improve HIGHER The labour challenge in Guangdong per-worker output or to replace workers. LABOUR does not stop with salaries. Close to 60% of Some have also outsourced less sophisti- PRODUCTIVITY our respondents faced requirements to pay cated operations to contractors, introduced more in social insurance for their workers new product designs, or improved benefits HELPS TO (Chart 5). This insurance includes pensions, for employees. Of those who have decided ABSORB, AND medical and maternity coverage, coverage (or plan) to relocate their factories to places THEREFORE for work-related injuries, and unemploy- with cheaper labour, 21 respondents said JUSTIFY, ment coverage. Actual implementation var- they would “move capacity inland”, while ies by region, but if fully paid, insurance is only six clients planned to “move capacity HIGHER equivalent to around 40% of an employer’s out of China” (Chart 7). The small number WAGES. basic salary. Guangdong province has been of employers planning to move locations known for its relaxed implementation of suggests that many believe that wage arbi- social insurance requirements over the tration is not a sustainable strategy. Moving past two decades, but this now seems to be a factory is a costly option; businesses can changing. lose proximity to suppliers and customers, A still-favourable productivity story and they have to bear higher transport costs. Higher labour productivity helps to Popular inland locations include absorb, and therefore justify, higher wages. Guangxi, Jiangxi, Hunan and Hubei (prov- If productivity growth keeps up with wage inces west and north of Guangdong). Re- growth, this is healthy. If wage growth spondents said labour-cost savings ranged significantly exceeds productivity growth, from 10-40%, with an average of 16%. For we have a ‘wage inflation’ problem. Pro- those looking to relocate overseas (four ductivity, though, is notoriously difficult respondents in the garment industry, one to measure. There are few reliable official in the printing business and one car-part Chart 7: How do you plan to respond to labour shortages? Chart 8: What is the orders situation like? No. of respondents No. of respondents

Source: Standard Chartered Research Source: Standard Chartered Research

40 Chart 9: What utilisation levels are you operating at? Chart 10: How do you think the CNY will perform against the USD between now and year-end? No. of respondents No. of respondents

Source: Standard Chartered Research Source: Standard Chartered Research manufacturer), Cambodia, Bangladesh and Beijing will allow the CNY to depreciate Vietnam were mentioned most, followed in 2012. The majority of respondents see by India and the Philippines. By relocating the CNY appreciating 0-5% against the to Cambodia and Bangladesh, companies USD this year (Chart 10). We forecast estimated wage savings of 45% and 50%, that the CNY will appreciate by 1.4% to respectively. 6.21 by the end of the year. We believe Beyond wages – Perception versus many of the gains will take place in H2, reality however. Our clients are more aggressive than we are – almost 50% expect CNY Orders are not too bleak, and idle appreciation of 3-5% in 2012. capacity is manageable Final thoughts – The PRD has We also asked our clients about their pockets of stress LOCAL orders over the past six months, and about GOVERNMENTS their outlook. There is every indication that labour ARE HAPPY TO Encouragingly, the majority of compa- shortages and upward pressure on wages nies have seen orders improve over the past are here to stay in the PRD. Wages will FOLLOW THE six months (see Chart 8), by an average of rise by some 10% in nominal terms, maybe WAGE TREND, 15%; those that reported declines said they 5-6% in real terms. This is less than in EVEN IF IT also fell by an average of 15%. This is sig- 2011, suggesting that the economy has APPEARS TO BE nificantly better than China’s overall export cooled. Companies’ costs are also rising numbers, which were basically flat in H2- as social insurance contributions are en- DRIVEN BY JOB 2011. There is good news ahead, too: An forced. CREATION IN even larger number of companies foresee Local governments are happy to fol- THE INTERIOR orders improving over the next six months low the wage trend, even if it appears to (by an average of 14%). Less than 18% ex- be driven by job creation in the interior AND SHIFTING pect orders to decline, by an average of 13%. and shifting population dynamics. There POPULATION There is a selection bias in our sample – our is limited evidence that this trend is lead- DYNAMICS. clients are likely to be the best at what they ing to a loss of competitiveness in China’s do – but their views are still an encouraging manufacturing sector, and that the real signal. income growth it is generating for house- Utilisation ratios also are not bad. As holds is to be welcomed. For those with an Chart 9 shows, one-third of our 204 re- eye on near-term demand trends, this wage spondents are operating at full capacity. A growth suggests that China’s labour market few are operating at less than 80% of capac- remains pretty healthy, meaning that some ity, however, which we would call a danger in Beijing remain reticent about loosening level. monetary policy. Onshore firms say there will be no CNY depreciation (Authors: Economists from Stan- Our clients do not buy the story that dard Chartered Bank)

41 CONOMY E

Data Watch on China’s Foreign Trade and Investment in the First Two Months of 2012

China’s foreign trade in January and increases over the same period of last year. The February 2012 nation’s trade with Europe jumped by 4.7%; that with the United States up by 9.2%; and According to statistics of the Customs, that with the ASEAN up by 9.1%. China’s exports and imports in the first two Significant increase in exports of cen- months of 2012 reached $533.03 billion, up by tral and western China; modest increase 7.3% over the same period of last year. Specifi- in exports of eastern China. In January cally, exports stood at $264.39 billion, up by and February, exports of Henan, Chongq- 6.9% year on year; imports $268.64 billion, up ing, Gansu, Guangxi and Jiangxi rose by 1.6 by15.3%. The two months saw a trade deficit times, 1.4 times, 52.6%, 38.7% and 22.4% of $4.25 billion. In February alone, China’s respectively. Exports of Guangdong, Jiangsu, trade volume registered $260.43 billion, up by Shanghai and Zhejiang increased by 0.7%, 29.4%. Specifically, exports stood at $114.47 2.8% and 9.4% and 2.5% respectively. billion, up by 18.4%; imports $145.96 billion, Steady increase in exports of mechani- up by 39.6%. The 2011 Chinese Spring Festi- cal and electrical products; steady increase val, which fell on February 2012, factored into in imports of traditional bulk commodities. the data. In January and February, China exported Stronger growth in exports under the $156.44 billion worth of mechanical and elec- general trade; slight increase in imports un- trical products, 8.8% higher than that of last der the processing trade. In January and Feb- year, 1.9 percentage points than the increase ruary, China’s general trade value jumped by rate of the nation’s total exports volume. The 7.8% year on year to $283.49 billion. Specifi- country imported 120 million tons of iron cally, exports increased by 5.6% year on year ore, an increase of 5.7% year on year, and 8.44 to $123.08 billion, while imports increased by million tons of soy beans, an increase of 13.2% 9.6% to $160.41 billion. The nation’s process- year on year. ing trade value jumped by 5.3% year on year Utilization of foreign investment to reach $188.44 billion. Specifically, exports increased by 7% to $121.14 billion, while im- In the first two months 2012, China ports increased by 2.3% to $67.3 billion. approved the establishment of 3,005 new for- Significant increase in trade with eign-invested enterprises, a decline of 11.59% emerging markets; modest increase in trade year on year. The nation utilized $17.723 bil- with Europe and the United States. In Janu- lion worth of foreign capital, a decline of 0.56% ary and February, China’s bilateral trade with from the same period of last year. In February Russia and Brazil reported 31.9% and 10.6% alone, China approved the establishment of

42 1,603 new foreign-invested enterprises, up Overseas investment and economic by 11.59% year on year. The nation utilized cooperation $7.726 billion worth of foreign capital, a decline of 0.90% from the same period of last China’s outbound FDI In the first two year. months of 2012, China’s domestic investors Significant increase in the utiliza- invested directly in 706 overseas corporations tion of foreign capital by such sectors as in 97 nations and regions, with a total of non- agriculture, forestry, animal husbandry, financial outbound FDI of $7.435 billion, an and fisheries; slowdown of the increase in increase of 41.1% year on year. utilization of foreign capital by the service Overseas-contracted projects In Janu- sector. In January and February, the sectors of ary and Febuary, China’s overseas-contracted agriculture, forestry, animal husbandry, and projects reported a turnover of $11.5 billion, fisheries made an actual use of $312 million an increase of 16.6% year on year. $14.48 bil- in foreign investment, an increase of 38.20% lion worth of new contracts were signed, down year on year and accounting for 1.76% of the by 18.5% year on year. 52 of the new projects country’s total utilization of foreign capital. were of a contract value of over $50 million, The manufacturing industry made an actual with a total contract value of $10.36 billion, use of $8.361 billion in foreign investment, a representing 71.5% of the total value of the decline of 0.10% over the same period of last newly-signed contracts. 34 of the new projects year and accounting for 47.18% of the national were of a contract value of over $100 million, total. The service industry made an actual use 8 more than the same period of last year. of $8.009 billion, a decline of 3.51% year on Foreign labor service cooperation year, 2.95 percentage points higher than the In January and February, the number of all country’s average rate of decrease. The service kinds of labor sent abroad was 56,000, about industry accounted for 44.72% of the national the same with last year. 27,000 of them are total utilization of foreign capital. working on overseas contracted projects, and Upward trend in investment in China 29,000 of them are for labor cooperation. from Asia and the United States. In Janu- At the end of February, there were a total of ary and Febuary, paid-in capital from the ten 799,000 Chinese working abroad, 35,000 Asian nations or regions (Hong Kong, Ma- more than the same period of last year. cao, the Taiwan province, Japan, Philippines, Thailand, Malaysia, Singapore, Indonesia, and (Source: Press conference of the South Korea) was valued at $15.379 billion, an Ministry of Commerce of China on March increase of 2.66% year on year. Paid-in capital 15, 2012) from the United States amounted to $525 million, up by 0.87% from the same period of last year. Paid-in capital from the 27 European Union nations fell by 33.32% to $906 million. Significant increase in paid- in foreign capital to central China. In January and Febuary, the eastern regions made an actual use of $15.152 billion in foreign investment, a decline of 1.63% year on year and accounting for 85.49% of the national total. The central regions made an actual use of $1.428 billion, an increase of 19.21% and accounting for 8.06% of the national total. The western regions made an actual use of $1.143 billion in foreign investment, a decline of 6.55% year on year and accounting for 6.45% of the national total.

43 AGRICULTURE

Corn imports by China seen gaining analyst at Shanghai JC Intelligence Co. The country is the sevenfold to record largest buyer of the oilseed, with imports rising more than Industrial Watch fivefold in the past decade as local output dropped, according to USDA data. ndustr i al Watch Demand for food and livestock feed has increased in I ccording to Bloomberg on March 18, corn imports by China as economic growth has lifted incomes, driving an in- China, the world’s second-largest consumer, may surge crease in protein consumption. Corn is used to make animal sevenfoldA to a record 28 million metric tons by 2015-2016 as feed, while soybeans are crushed for oil and also used to fat- local production fails to keep pace with increased demand, ten livestock. Gross domestic product expanded 9.2 percent according to INTL FCStone Inc. (INTL) in 2011. Imports may gain from 4 million tons in 2011-2012 FCStone’s forecast for an import surge joins projections and reach 13 million tons by 2012-2013, Mike O’Dea, se- from Singapore-based commodity supplier Olam Interna- nior risk manager, told a conference in Singapore. The local tional Ltd. (OLAM) and Cofco Agri-Trading & Logistics harvest may reach 187 million tons next year, 6.5 percent Co., a unit of the China’s biggest grain trader. Imports may less than projected demand, according to a presentation total 20 million tons by 2015, Olam said in October. Ship- from O’Dea. ments by 2020 may be as much as 20 million tons, Cofco “We’re projecting a doubling of imports this year, and Agri-Trading said the same month. doubling again next year because they’ve got to maintain that An increase in agricultural imports could cut the im- reserve stock,” said O’Dea, who’s been in the grains indus- pact of grain and livestock farming on soil and water, and is try for three decades. The government sold some of its corn “nothing to be afraid of,” Hu Bingchuan, a researcher at the stockpiles last year to combat inflation, he said. Rural Development Institute of the Chinese Academy of So- Corn for delivery in May was little changed at $6.42 per cial Sciences, said in an interview last November. bushel on the Chicago Board of Trade at 3:26 p.m. in Sin- China’s imports of corn may be the “biggest wild card” gapore. The price has declined 0.7 percent this year. Global in the global market in the near term as the country may look ending stockpiles may be 125.3 million tons this year, the to rebuild the state stockpiles, O’Dea said. lowest level in five years, according to the U.S. Department Global food costs have declined 10 percent since reach- of Agriculture. ing a record in February 2011, according to a 55-item gauge “China’s imports of corn will likely grow like the soy- compiled by the Rome-based Food & Agriculture Organiza- bean trade, that’s almost a certainty,” said Tommy Xiao, an tion, a United Nations agency.

China’s looming structural corn deficit may support prices and boost global food costs. China Comment should increase its agricultural imports to help feed its 1.3 billion people and ease pressure on the environment.

Farm produce prices rise on reduced supplies

The wholesale prices of eight staple aquatic products gained 0.3 percent last week, with the price of grass carp up 2.1 percent. Meanwhile, the price of pork, which was the main driver of the nation’s inflation last year, fell for seventh consecutive weeks last week, down 1.3 percent. Egg prices dropped 0.1 percent during the period. Food prices have a one-third weighting in the calcula- tion of China’s consumer price index (CPI), a major gauge of inflation. The country’s CPI eased to 3.2 percent last month, down from 4.5 percent in January. Of major production materials, prices of steel, rubber, non-ferrous metals, energy, light industry materials and building materials gained week-on-weak, while mineral inhua reported on March 20 that prices of major farm product prices fell slightly. produce monitored by the government rose as snow falls With a population of 1.3 billion, food interruptedX supplies, the Ministry of Commerce said. supply is one of the most important is- The wholesale prices of 18 staple vegetables rose 3.2 per- Comment sues that the government should take cent from one week earlier, and the prices have increased 9.7 measures to stabilize. percent during the recent four weeks, the ministry said.

46 Consumer

China’s toy makers explore growth Moutai aims high for breakthroughs global reach

aving built a reputation as China’s top liquor brand, Moutai is now aiming to become a world-famousH drink, China Daily reported. Ji Keliang, the honorary chairman and chief technical adviser of China Kweichow Moutai Dis- tillery, told China Daily that he was confident in the quality and unique flavor of the liquor, and the sophisticated technology used in its distillation. But he admitted the sales of Moutai products outside of China is still quite limited. This was due in part to the difference in drinking habits. There is a greater choice of alcoholic strengths and flavors in other countries. Ji, 73, has worked for the distilling company for nearly 50 years. He became chairman in 1998 and retired from the position last year. The group aims to further increase its output to about 100,000 tons by 2015, from about 60,000 tons in 2011, he said. It will bring the group an income of 50 billion yuan ($7.9 billion). The company saw an income of 23.7 billion yuan last year. hina’s toy makers are exploring new ways to break the bottlenecks “If Moutai succeeds in the international of development as the ongoing European crisis continues to im- market, it can set a good example for other Chi- pactC demand, according to Xinhua. nese liquor brands,” said Liu Yuan, secretary- Toy makers are actively expanding industrial reaches, enriching general of the China National Association for cultural elements in products and tapping into the domestic market Liquor and Spirits Circulation. in their attempts to survive global headwinds, reporters from China Moutai’s strategy is to promote itself to- Securities Journal learned at a news briefing held in Guangzhou, the gether with traditional Chinese culture. sector’s stronghold. “Instead of selling the liquor alone, we will Official statistics showed China’s toy exports totalled 24.78 billion combine our products with the Chinese cul- U.S. dollars in 2011, up 17.57 percent year-on-year. ture,” Ji said. After deducting for pricing factors, the amount of exports actu- Yi Jigang, the former chairman of liquor ally fell during the period, Li Zhuoming, executive vice director of the maker Guizhou Dongjiu, backed the strategy. “It’s Guangzhou Toy Association, said, attributing the drop to waning de- vital you exploit the culture behind the product,” mand from Europe. he said. He said a stricter standard on toy safety in the European Union “Moutai will get more recognition from West- last year had substantially lifted testing fees for Chinese makers, which, ern consumers when it allows them to also get a in turn, hurt sales. taste of the rich Chinese culture behind the brand.” In response to rising costs and waning demand, toy markers are But Yi warned that Chinese liquor produc- tapping new grounds, with some branching out into animation and ers did not currently have the international mar- baby products. keting capability and would be greatly restricted Others are shifting focus from selling products to selling culture. if they relied too much on foreign distributors. He Bin, president of Hexin Group in east China’s Zhejiang prov- In the market at home, although Moutai ince, said his company partnered with the Department of Education enjoys a high degree of recognition and popular- and children magazines to produce a range of themed products, which ity, its image has been tainted by being associated led to the company’s successful transformation. with lavish lifestyles, including that of govern- Li said with exploration and upgrading, China’s toy industry ment hospitality. will take on a new look and there is ample room for development once world economic recovery picks up. Comment A recent report by China Se- curities Journal shows that The cooling economy climate is a two-edged China is mulling plans to boost wine in- Comment sword. While, it is good news that China’s toy dustry. It is expected that Chinese liquor makers are changing business strategies. will step up in going global.

47 ELECTRONICS

IndustrApple’si legalal Watch troubles open opportunities to competitors ndustr i al Watch I ccording to China Daily on March 22, Chinese and South Korean com- paniesA are moving to take advantage of Apple Inc’s struggle over copyright and trademark disputes in the largest market for mobile devices in the world. The South Korean company Sam- sung Electronic Co Ltd, which had the largest share of the Chinese market for smartphones and TVs last year, saw its revenue from sales of electronic devices in China reach US$9.5 billion in 2011, a 32 percent increase year-on-year. That surpassed the average global growth rate for the company’s revenue, which was 21 percent during that period, Kim Young- ha, president of Samsung Greater China, said. About 25.97 million smartphones were sold in China in the last quarter of 2011. Of those, about 22 percent were sold by Samsung and 6.9 percent by Lenovo. Apple’s share, mean- customers are eager to buy devices for use at their jobs, a ten- while, decreased by 1.4 percentage points from 7.1 percent in dency that is expected to propel the growth of the Internet the first quarter, according to figures provided by the domes- mobile market in the near future. tic IT research company Analysys International. “China is already the biggest market for monitors and “In January of this year, Lenovo’s market share increased desktop PCs as a result of its rapidly developing economy and to about 10 percent in the smartphone industry,” said Yang buyers’ larger disposable incomes,” said Robin Wu, analyst Yuanqing, president and CEO of Lenovo. “Since Lenovo be- from the US-based research company DisplaySearch. came the second-largest PC maker globally last year, we have Apple still holds about 70 percent of the Chinese market been putting a greater emphasis on mobile Internet products.” for tablet PCs, which saw 6.4 million of those devices sold To cater to the Chinese market, Samsung plans to intro- last year. But that share has decreased, going from 78 percent duce a smartphone that uses Google Inc’s Android operating in the first quarter of 2011 to 71 percent by the end of the system. It will be called Galaxy Beam and will have a device year. that enables it to project pictures, documents and videos, the Lenovo held 10 percent of the market for tablet PCs company said. in the fourth quarter of 2011. The Chinese company plans Beyond that, Microsoft Corp introduced its latest mo- to introduce more tablet computers this year while Apple’s bile operating system, Windows Phone 7.5, to China on the popular iPads are being confiscated by Chinese government same day. The company’s Windows Phone operating system departments as a result of the company’s trademark dispute is facing intense competition in China, where more than half with a Shenzhen-based Chinese company. of the market for such products is dominated by the Android In 2011, 6 million 3D smartTVs were sold in the Chi- operating system. nese market. That number is predicted to increase to 20 mil- About 6,000 Chinese developers are working on ap- lion this year, said Lu Renbo, general secretary of the China plications for the Windows Phone operating system, as are Electronic Chamber of Commerce. 100,000 developers throughout the world, according to Mi- To compete in China against Apple and Google and crosoft. Its applications store contains 2,000 Chinese applica- other rivals, Samsung and Lenovo have announced plans to tions, said Liang Nianjian, president of Microsoft China. introduce new smartTVs in the first half of 2012. The market for Internet mobile devices has entered a period of fast growth. More than 90 percent of Chinese Comment Internet mobile devices include smart- employees are believed to be in the habit of bringing their phones, tablet PCs and smartTVs. The electronic devices to work, said David Sung, China president market for those products is seeing intense competi- of the US-based information technology company VMware tion among Apple, Samsung and the Chinese com- Inc. pany Lenovo. According to the company’s latest report, Chinese

48 ICT

China’s online video giants in surprise marriage

ncreasing competition in China’s online video market has Youku had 21.8 per- Youku 21.8% pushed the two biggest players to a merger that will cre- cent of China’s online video ateI the largest company in the industry, according to China market in the last quarter, Daily report. followed by Tudou with 13.7 Youku.com Inc, the country’s top online video provider, percent. ONLINE VIDEO MARKET agreed to buy its main rival, Tudou Holdings Ltd, in a stock- Xu Weifeng, president SHARE Q4 2011 for-stock transaction, the two companies said. of PPStream Inc, an online The deal came as the companies were battling for mar- video service provider, said Tudou Others 13.7% ket share, spending heavily to buy licensed content. the merger is good news for 51.2% “Funding pressures are the main reason for the deal,” other players since they will Sohu 13.3% said Shi Jialong, a Hong Kong-based analyst with CLSA have one less rival. Source: Enfodesk Asia-Pacific Markets. However, the merging The costly battle for dominance left both companies in companies “are still under pressure from low profit margins, the red last year. Youku reported a net loss of 172.1 million which must be resolved after the merger,” he said. yuan, though that was down 16 percent from the previous Youku’s market value, at about $2.85 billion, is six times year, while Tudou had a net loss of 511.2 million yuan. Tudou’s. “After the merger, there might be a fall in copyright purchase prices, which is good for the industry in the short Comment Although the two companies faced term,” Shi said. off earlier in a copyright dispute, their Xie Wen, a Chinese IT critic and former president of surprise merger appears to be a rational response Yahoo China, agreed. However, he added that the new com- to the problem that online video websites have in pany still faced fierce competition with portals that provide making ends meet. similar services.

Businesses warned over Internet security

hen 32-year-old public relations specialist Wang Ning at risk of attacks. “These websites usually contain large quan- heard that China Software Developer Network, the tities of personal information including itineraries, contact country’sW largest programmers’ website, had 6 million pieces lists, phone numbers and purchasing habits,” said Liu. of its users’ personal information stolen days before the end “Such information is valuable to many interest groups of last year, he decided to change the passwords of all his ac- such as business rivals, salesmen and even swindlers,” he added. counts on the Internet, China Daily reported. However, the most inviting yet poorly-guarded targets However, Internet security experts say changing pass- for hackers are the websites of education institutions, govern- words alone does not guarantee the safety of users’ data. ments and online games, the report said. More than one third According to an annual report released by Beijing Ris- of Trojan attacks were targeted at education institutions. ing Information Technology Co Ltd, the country’s leading In addition, the report also found that at least 65 percent Internet security company, nearly 200,000 websites in the of the attacks came from overseas Internet protocol addresses, nation were hacked last year. More than 50 percent of the with the United States, South Korea and Japan being the ma- hacking was conducted by viruses or Trojan horse programs. jor sources. “Our conservative estimation is that at least 10 secu- But Liu pointed out that a large number of hackers in rity breaches can be found on three quarters of the websites China are using proxy servers to conceal their actual IP ad- whose daily page views exceed 10,000,” said Liu Siyu, direc- dress, an action that may disguise the source of the attacks or tor of the security research team at Rising. suggest it came from another country. “That means almost every website in China can be at- tacked by hackers,” he added. Comment Chinese websites are vulnerable to Another Bejing-based Internet security provider, Qihoo hackers because most companies 360 Technology Co Ltd, reported in February that more and institutions in China hesitate to invest in se- than half of Chinese websites have gaps in their security and curity departments because they do not gener- as many as 36 percent carry “high-risk vulnerabilities”. ate profits. More investment should be made into Experts warned that users’ hotel-booking accounts, keeping users’ data safe. social networking and online purchasing websites are most

49 AUTO

AQSIQ received over 8800 automobile China hikes fuel prices again Industrial Watch related complaints in 2011 ndustr i al Watch

I n March 20, China he General Administration of Quality Supervision, Inspec- hiked fuel prices tion and Quarantine’s Defective Product Administrative byO the biggest margin in Center,T said that it received a total of 8,840 complaints regarding nearly three years after a automobile problems last year, Xinhua reported on March 16. The surge in the cost of global amount is 20.8 percent higher than 2010’s figure. crude, the government At a press conference on World Consumer Rights Day, and state media said. AQSIQ Deputy Directory Liu Hong confirmed that com- The rise is the sec- plaints were raised against 596 different models from 148 ond this year and comes manufacturers. as the government has more leeway to adjust price levels The vast majority of complaints, 95.5 percent, were for while inflation eases from three-year highs seen in mid-2011. sedans, SUVs and minivans. Trucks, buses and tire recalls The benchmark retail price for petrol will rise by 0.44 respectively made up the remaining 2.4 percent, 1.6 percent yuan ($0.7) per litre while the price for diesel rises by 0.51 and 0.5 percent. 2,202 complaints, nearly a quarter of the to- yuan ($0.8), state planner the National Development Reform tal, were for brake system and wheel problems. 1,935 were for Commission (NDRC) said in a statement late on March 19. engine problems, while 1,550 were for drive train issues. “This is a result of surging global crude prices and easing A third of issues were for two year old vehicles, while domestic inflationary pressures,” Liao Kaishun, an analyst at 16.8 percent were for vehicles less than a year old. Among industry consultancy C1 Energy, said. the most cited topics were for DSG transmission issues, ran- “The NDRC might also have done it out of consider- domly deploying airbags, defective horns, dying engines and ation for energy conservation and emission reduction, for worn tires. which low resource prices will certainly do no good,” he said. AQSIQ issued a total of 85 vehicle recalls last year, af- The commission can adjust fuel prices when internation- fecting nearly 1.83 million automobiles in the country. al oil prices move by more than four per cent over a 22-working day period. Beijing limits rises in fuel costs to insulate Comment If Consumer Rights Day arrives in domestic consumers when international prices rally. China every day, instead of one day in The latest move works out to a rise of about 600 yuan a year, the problem of the complaints will surely be per tonne, the largest since June 2009, the official Xinhua solved much better. news agency reported. After the increase, the benchmark price for petrol would rise 7.0 per cent to 9,180 yuan per tonne and diesel would rise 7.8 per cent to 8,330 yuan per tonne, the commission said. Restructuring to decrease number of China also raised prices last month by 300 yuan per Chinese auto manufacturers tonne for both petrol and diesel. Inflation eased last month to 3.2 per cent — its slowest pace since June 2010 following a string of interest rate hikes t this year’s government report, Chinese State Council and other monetary tightening measures by Beijing. Premier Wen Jiabao once again brought up the issue of “Inflation appears to have subsided, providing room for restructuringA the automobile industry, placing it relatively the second oil price hike (this year),” Australia and New Zea- high on his list of priorities. In a report appearing on Gas- land Banking Group said in a research note. goo.com on March 17, China Automobile Dealers Associa- “The direct impact on CPI (consumer price inflation) tion Deputy Secretary General Luo Lei also voiced his sup- will be manageable at this stage.” port for restructuring. China fears surging inflation carries the potential to “Currently, the number of Chinese manufacturers is spark social unrest. fairly high, while their scale is not large,” Mr. Luo noted. “By Announcing the latest fuel price hike, the government undergoing merging and restructuring resources can be ef- said it would offer subsidies to sectors like mechanised agri- ficiently integrated.” Mr. Luo believes that this will also help cultural and taxi drivers to lessen the impact. get rid of the unnecessary waste caused by competition, helping further develop the market. Comment It is also reported that after the fuel China currently has over 140 automobile manufacturers price rise, many other industries are active in the country. Worth noting is that the ten largest of suffering, such as textile and logistics, since their these account for 87 percent of all sales. Numerous manufactur- hiking cost eats into their poor margin profit. Some ers can’t even manage annual sales of over 10,000 vehicles. micro and small enterprises are under even bigger pressure now. Comment Better late than never.

50 Based in China, Aiming for the World —Establishment of Beijing Foton Daimler Automotive Co., Ltd.

Daimler will focus on the global economy medium & heavy-duty market. Under the agreement, the joint venture has set the goal of making joint efforts to cultivate a globally competitive and most cost-effective economy truck brand and develop the global market. Currently, global medium & heavy-duty truck markets fall into two categories. One category, dominated by high-end products, is spread in Europe, the U.S., Japan and Korea, and the other, dominated by low & medium- end products, is spread in emerging economies such as China, India and CIS. The high- end medium & heavy-duty truck market has n February 18, 2012, Beijing tive operations. Joint ventures in countries like been mature and grown slowly, while the low Foton Daimler Automotive Co., Russia will be regional production and sales & medium-end medium & heavy-duty truck Ltd. (Foton Daimler) was estab- centers. market grows rapidly with great outlook, lished in Beijing. Daimler and Thus, the joint venture is intended development potential and commercial value. Foton eventually tied the knot. to build a global operation center “based in Daimler enjoys advantages in brand, technol- OWith a total investment of 6.35 bil- China” initially and “aiming for the world” ogy and product in the first category, and Fo- lion yuan and a registered capital of 5.6 bil- ultimately. ton enjoys these advantages and boasts great lion yuan, Foton Daimler will manufacture Based in China, Aiming for the World potential in the second category. Daimler and Foton’s existing “Auman” medium & heavy- Foton are strategically complementary. Prod- duty trucks and Daimler-licensed 490hp Daimler-Foton partnership provides ucts integrating advantages of both companies Euro V heavy-duty truck engines. Foton will strong complementarity for both parties and will achieve great success in the second cat- retain the ownership of and the right to use helps to jointly develop the international mar- egory by virtue of optimal cost performance proprietary technologies, patents and brands ket, thus achieving strategic win-win. and extensive applicability. of “Auman” medium & heavy-duty trucks Daimler is a typical representative of Besides, the alliance with Daimler will in the overseas market; Daimler will provide global auto industry development. In the field enable Foton to access Daimler’s advanced technical and expert support to help the joint of commercial vehicles, Daimler aspires to be R & D technologies and global operation venture to improve product quality and as- the world’s largest supplier, create outstanding experience and resources, sharpen the inter- sist in developing new products targeting the value for its customers and become a model of national competitiveness of Foton’s automo- Chinese market. quality and profit. Remarkably, Daimler has tive products and provide support for Foton’s Following the establishment of Foton played a leading role in the global high-end leapfrog global development in respects of Daimler, Foton and Daimler will, by stage, medium & heavy-duty truck market. brand reputation and marketing network; Fo- establish joint ventures in countries and Foton is a fast-growing manufacturer ton’s advantages in product resources and cost regions such as Russia, South Asia, and Cen- of full series of commercial vehicles, has de- control of economy commercial vehicles will tral and South America. Beijing will be the veloped into Asia’s largest commercial vehicle also help Daimler expand its share in emerg- operating center of global cooperation, or the manufacturer, enjoys overwhelming advan- ing markets. management decision making, R & D, pro- tages in low cost and product scale, and boasts New Mode, Complementarity duction, supply chain management and mar- great potential. keting management center for global coopera- The strong combination of Foton and The joint venture has created a new

51 mode, which is unprecedented in China’s auto n February 18, 2012, Beijing Foton Daim- history andIndustr rare in the globalial auto Watch history. ler Automotive Co., Ltd. held the inau- The alliance has broken the old mode that gural meeting. On the same afternoon, at auto multinationals established assembly plants China’s first world-class digital model fac- only in China over the three decades since the tory of Second Auman Factory, Auman GTL, China’s initiation of the reform and opening up, setting Ofirst world standard heavy-duty truck with the historical a precedent that Chinese and foreign parties honor of “Global Standards” and the mission of “starting take China as the operating center and give play an era of high-quality heavy-duty truck”, was officially to respective advantages and jointly build Chi- launched to the global market. It is worth mentioning nese proprietary automobile brands. that on the launch conference site, Germany’s third- A close study of joint ventures in China’s party security certification authority awarded Auman auto industry reveals most joint ventures intro- GTL the “Rhineland Certification”, the highest safety duce products from foreign enterprises initially, standard certificate for global heavy-duty trucks. and build new brands of joint ventures or adopt Global Standards: Innovate the Value of Heavy- dual-brand mode later. However, Foton-Daim- duty Truck ler alliance is not the case. The joint venture will focus on single-brand operation of Auman and Auman GTL is featured with “high quality, high manufacture Foton Auman medium & heavy- security, high fuel-efficiency, high comfort, and high duty trucks and Daimler heavy-duty truck intelligence”. By adopting the international mainstream engines. The Auman products manufactured powertrain configuration, active and passive safety by the joint venture may be sold abroad through standards, low fuel consumption system design, intel- Daimler’s sales system. It can be said that the ligent control system, and humanized vehicle design, joint venture marks a new step--the Chinese Auman GTL achieves the high quality of world-class joint venture is the operating center of global co- heavy-duty truck and perfectly interprets the definition operation, or the management decision making, of “Global Standards”. R&D, production, supply chain management Auman GTL employs the world’s leading active and marketing management center for global and passive safety technology. The active safety system cooperation. with “ABS + EBS”, engine exhaust brake, and hydrau- This is a great move different from the lic retarder meets the brake regulatory requirements of traditional mode of joint venture, which has Western Europe, Japan and South Korea, Australia and subverted the history of joint venture in China’s other developed countries. The passive safety system auto industry, has changed the mode of primar- meets the European ECE R29 Crash Regulations. ily introducing models and brands from foreign In addition, the down front, side and rear protection countries, and will set a good example for Chi- meet the requirements of European ECE R93 Crash na’s auto industry on the issue of joint venture. Regulations, thereby increasing the security of the third With market development and compe- party. tition intensification, the new mode of joint The leading fuel-efficient performance is another venture of Chinese and foreign automakers has important manifestation of Auman GTL highlighting gradually smashed the shackles of the traditional the global standards. By the optimization of engine and mode—fully introducing foreign brands and throttle characteristic curve, the configuration of dou- models to the single domestic market, attempt- ble overhead camshaft four-valve, multi-state switch, ing leveled development of Chinese and foreign and fuel-efficient switch, it is 3%-5% more fuel-efficient brands in respective markets, and achieving than other vehicles of the same type. The low-resistant interdependence and win-win in cooperation. high flow intake and exhaust systems, preheat oil-water This is a wise choice for Daimler and Foton to separator, and efficient cooling module give full play cope with new challenges in constant changes in to the strong dynamic performance of the engine. The the global auto industry and market. Foton will truck body experiences the CFD flow field analysis and further go global to establish the role of Chinese optimization, and wind tunnel tests. Therefore, GTL proprietary brands in the global market; and shows the best fuel efficiency and operation perfor- Daimler will get more opportunities in China mance under various operating conditions. and other emerging economies. As the world’s standard heavy-duty truck, Auman According to industry insiders, Foton’s GTL has the car-level comparable comfort. The comfort retaining the proprietary brand also shows design makes full use of space superiority and brings the Global Standards Beijing Creation Beijing Standards Global Auman Established, Daimler Foton Beijing Heavy-dutyGTL Truck Launched Chinese enterprises will accomplish equal and passengers unparalleled driving experience. The four- mutually beneficially cooperation with interna- point suspension air bag body suspension system adjusted tional giants after growing strong through its by German Sachs experts, coupled with the airbag seat’s own efforts. three-level shock mitigation system, could effectively

52 reduce the vibration and shock of the moving vehicle, and the ride comfort index reaches the level of the European heavy-duty truck. The superior intelligent design of Auman GTL with the CAN bus system realizes electric windows, central locking, and automatic cruise control. The perfect combination of refined Auman GTL product configuration and global standards reflects the high quality of the “Global Standard Heavy-duty Truck ” and is bound to become a value model in the global market. Global Standards: Build the Whole Value Chain

As the first strategic product of Foton to link up with international standards, Auman GTL follows European standards in the development process, including the R&D unified comprehensive and satisfactory Global Standards: Change Competi- system, the supply system, the manufactur- whole-cycle world-class services in the tion Sequence ing system, the quality assurance system, whole process from purchase to utilization. and the service system. Based on the whole Global Standards: Won Various “Global standards, global quality, and value chain platform, it carries the mission Awards global brand” achieve the global heavy-duty to start a high-quality heavy-duty truck era truck. The launch of Auman GTL in global of China and to participate in international By “building the whole value chain market is bound to “change the world by competition by global standards! platform and linking up with global stan- global standards”. To this end, Foton cooperates with dards”, the high quality of Auman GTL The production links up to global European company of ECS, Sachs and heavy-duty truck passes multi-party verifi- standards. The product interprets the global other well-known design companies to cation. Soon after launched, Auman GTL quality. The strategy builds a global brand. cultivate a world-class R&D team, select participated in “Oriental Dakar” - Taklima- The establishment of Beijing Foton Daimler the global high-quality key parts suppliers, kan Rally to accept the harsh test of deserts, Automotive Co., Ltd. will thoroughly pro- and work together to build a global supply Gobi desert, dust storms, high temperature mote Auman in management, technology, system. and other environment, and won the truck and global market operation, and pave the In addition, Foton constructs Auman championship, “Best Racing Heavy-Duty way for Auman GTL to enter the competi- Global Digital Model Factory with unique Truck Award” and a number of honors for its tion sequence of global market. manufacturing equipment of four interna- virtue of no major repairs for 800,000-km, Auman GTL successfully stands side tional and eight domestic characteristics, stable performance, and zero failure rate. by side with global standard peers in ser- strict management system, and internation- After the Rally, Auman GTL once vice, manufacturing, technology and other ally leading process. The quality supervi- again won in the “2012 Chinese Truck of aspects. sion system of 36 tests virtually realizes the The Year Contest” for its superior quality In future, to greet the dawn of “Fo- creation of global high-quality whole value and whole value chain platform. The absolute ton 2020” strategy and to undertake the chain of the heavy-duty truck. majority of nearly 30 experts selected Auman mission of “Global Foton Global Cre- Auman GTL peruses “Global Qual- GTL as “2012 Chinese Heavy-Duty Truck ation”, Auman GTL will play as the well- ity” in R&D and manufacturing systems, of The Year” after the whole-vehicle tests deserved vanguard of the global market and has also become the market leader of in power, safety, handling stability, energy- layout of Foton. Auman GTL will become the heavy-duty truck in the service sys- saving and other aspects. Together with the the world famous heavy-duty truck for its tem. To build China’s first global standard “German Rhineland Safety Standards Cer- “global standards, global quality, and glob- heavy-duty truck, Foton launched China’s tification” at the global marketing confer- al brand”, impact the competitive sequence first world-class heavy-duty truck service ence, Auman GTL perfectly showcases the of the global heavy-duty truck market, standards - “5T” Service Standards for Au- feelings of the world-class heavy-duty truck and bring world-class quality enjoyment man GTL. With the support of the service brand of Foton and lays the brand mark of and brand-new value experience for users system, Auman GTL users will enjoy the the global standard heavy-duty truck. worldwide.

53 METALS

Industrial Watch ndustr i al Watch

I Gold – Super-Cycle to Extend

By Dan Smith

Prices bounce higher at start On April 7, 2011 we published Com- of 2012 modity outlook, ‘Gold: Super-cycle to extend above USD 2,100/oz’. Back Gold prices have bounced higher then, the gold price was languishing in the first couple of months of this year around USD 1,420/oz, but the rally as strong investor flows and improved that followed was one of the most spec- confidence about the economic outlook tacular in modern times, taking prices have lifted metal markets across the back up to a peak of USD 1,920/z (up complex. While gold has not rallied as 57% y/y), before they fell back sharply. much as some of its peers, it has proved Despite this correction, we remain. resilient in the face of US dollar (USD) We see prices rallying to record highs strength, which seems to bode well for to average USD 1,975/oz in Q4-2012, the outlook. Also, the continued use breaking above USD 2,000/oz at some of quantitative easing in Japan, UK point in the year ahead. We are now and the US and the LTRO program forecasting that the spot price averages launched by the European Central USD 1,606/oz in the period 2012-20 (up Bank (ECB) in December have all from USD 1,518/oz previously), mainly heightened concern about the potential due to a higher cost base. for inflation further down the road. Demand hits a fresh record In this piece we examine the lat- high in 2011 est developments in gold and provide Jewellery sector pulled back an updated long-term price forecast. The World Gold Council (WGC) in H2 released its latest Gold Demand Trends report in February, which highlighted Jewellery demand started 2011 on the ongoing expansion in global de- a strong note in H1, but it was subdued mand. For 2011, gold demand edged up in H2 as high and volatile prices de- by 0.4% to 4,067 tonnes (t) from 2010, terred consumers. Demand from this although the year finished on a more sector has steadily declined in recent downbeat note with a 2% y/y drop in years and is now down by about 40% Q4, as falling equity markets and lack- from its peak back in 2000. While its lustre demand weighed on the market. importance is diminishing, the market Jewellery and investment remain tends to act as a stabilising influence on the dominant drivers of gold demand the gold price, as it normally picks up and accounted for 89% of demand in when prices fall and vice-versa. 2011. Global jewellery demand fell by Indian demand tumbled during 3% in 2011 to 1,963t, which was more the latter part of 2011 as Indian rupee than offset a 5% rise in investment (INR) weakness raised prices in lo- activity. Higher prices played a role in cal currency terms and some retailers limiting growth in tonnage terms; gold destocked. The future looks brighter, demand in value terms for the full year with the government tightening quality was up a strong 29% y/y, giving a more standards: hallmarking of gold jewel- bullish impression. lery became mandatory at the end of

54 of gold (mainly by European central banks) which was common through most of the past 10 years, has pretty much halted. However, buying of gold by central banks in emerging markets has skyrocketed. According to figures from GFMS, a metals consultancy, Mexico was the biggest buyer (up 100t), followed by Russia (up 87t), Thailand (up 53t) and South Korea (up 40t). The buying by Russia was not a great surprise as it has been an active buyer over the past 5-10 years. The buying by Mexico, South Korea and Thailand was more significant, as this comes after a long period (at least 10 years) of broadly stable gold holdings. This change in behaviour appears to have come about partly because gold has moved back into fashion as a protection against currency devaluation and as a source of stability. Also, many assets such as US Treasur- ies are no longer seen as risk-free and quantitative easing programmes and downgrades of sovereign ratings have helped to push central banks in the direction of gold as a safe-haven. The next question many ask is: Which countries remain significantly underweight gold? China remains at the top of this list, with its official reserves still published at 1,054t – un- changed since 2009 and accounting for just 1.7% of FX reserves. This compares to a global average of 12%. The list of last year. The weakness in India was for the majority of this. Strong growth other potential buyers is quite large, but partly offset by strength in China, was also seen in China, Indonesia and looking at FX reserves, the following where demand grew 13% y/y in Q4. Thailand, as investors outside the re- emerging markets have seen the most Stock-building took place ahead of the gion tried to diversify their currency significant increase in recent years – Lunar New Year holiday in January and risk and hedge against the possibility of Chile, Bangladesh, Brazil, Indonesia, consumers remain keen on pure gold an inflation blow-out further down the Philippines and Sri Lanka. Most of jewellery as a quasi-investment product. road. Even India showed a modest in- these countries could be considered Investment demand crease in investor appetite of 5%, which underweight gold at the moment, but accelerates helped to offset the weakness in other particularly the first four. Very strong parts of the market. Chinese imports from Hong Kong in Investment demand for gold con- Official-sector buying at Q4 at 228t were generally attributed tinues to build (in both stock and flow highest level since 1964 to central bank buying. Certainly terms). Demand for the full year was somebody was stockpiling gold in large up 5%, with Q4 demand accelerating Central bank buying surprised quantities, although whether this was by 19% y/y. Physical bar demand re- on the upside in 2011, reaching a net local investors or central bank activity is mains a dominant force, rising by 29% 440t. This was the highest level since not known for sure. in 2011, as investors globally worried 1964 and compares to net buying of Gold super-cycle to extend about the impact of the unfolding debt just 77t in 2010. Net buying on a y/y further crisis in Europe. European demand basis peaked at 29t/month in March for gold bars and coins rose by 26% to 2010, just a fraction down from its all- We have updated our long-term reach 375t (a record high) in 2011, with time peak, highlighting the structural forecast for gold that we first published Germany and Switzerland accounting shift that has taken place. Net selling back on April 7 2011: Commodity

55 METALS

outlook, ‘Gold: Super-cycle are some early signs that the to extend above USD 2,100/ worst may be over. How- oz’. A lotIndustr has happenedial sinceWatch ever, the return to normality then. Back in early April the is likely to be a slow process, ndustr i al Watch gold price was languishing especially as deleveraging I around USD 1,420/oz, but has further to run and cred- the rally that followed proved it-rating agencies continue to be one of the most spec- to downgrade or threaten to tacular in modern times, tak- downgrade sovereign rating prices back up to a peak of ings. USD 1,920/oz (up a remark- Once interest rates able 57% y/y). While we were normalise and confidence bullish on gold, this took us in the wider financial sys- by surprise and the subse- tem returns, gold will come quent collapse to USD 1,522/ under selling pressure and oz suggested that a temporary investor inflows could easily bubble had developed. that he was bullish and even Soros reverse. Also we expect an accelera- Nearly a year on, it is worth ex- has hiked his holding. Looking at the tion in mine supply due to an extended amining the idea that gold prices may wider picture, investor appetite looks a period of high prices and margins. This have peaked already. Increased volatil- long way from being satisfied; indeed, should mean that gold prices will revert ity is sometimes seen as early evidence US managed-money positions are ris- back towards the costs of production, that a market peak is close, as the battle ing once more at the start of this year which is what we show in our forecast. between bulls and bears becomes more and they remain a long way down from Production costs are escalated by global two-way and aggressive. Also, some their recent record high. inflation and the margin over costs is major hedge funds have started to cut One thing that has improved assumed to remain at 31%, which is the their long positions, which could be a is the macroeconomic backdrop. In most recent eight-year average using sign that the smart money is seeking an particular, figures for the US have sur- GFMS data. This does make us more exit. prised on the upside and the banking bullish with our long-run forecast than Looking at the breakdown of crisis in Europe seems to have been we were previously made. SPDR – the largest physical ETF for averted by the ECB’s LTRO program We now forecast that the gold gold – the most noticeable selling in Q4 launched in December. What has been price will average USD 1,248/oz in took place by Paulson, who sold 3mn reassuring is that gold prices have man- 2020, compared to USD 1,078/oz shares in Q4, taking his giant position aged to rally, despite improving risk previously. This comes about mainly down for a second quarter. CI Invest- appetite, confirming the idea that gold because the cost base for 2010 rose ments sold 3.1mn shares, J.P. Morgan is rising on the back of strong demand more quickly than we expected. Also, 3.1mn shares and Alphabet Manage- from Asia and due to portfolio flows, the average margin is now higher, at ment 2.5mn shares. However, this was rather than being driven by more short- 31%, as opposed to 29% in April 2011. more than offset by other funds. The lived safe-haven flows. The main risk to this view comes from largest buyers in Q4 were Lone Pine The expectations of continued the fact that the cost base tends to rise Capital – up 3.8mn shares and Laurion low interest rates by the Fed have also and fall with prices and so it is difficult Capital – up 2.8mn shares. Other big helped to buoy precious metals. Since to split out structural from cyclical buyers include Schroder and Allianz, last April, the Fed has become more changes. We have not attempted to RBC, and Bank of America. Soros also dovish and has continued to downplay allow for this. Our average price fore- increased his position. The four biggest the idea of interest-rate hikes in the cast for the period 201220 now stands holders in SPDR at the end of Q4 were foreseeable future. Our view is that the at USD 1,606/oz, compared to USD Paulson (17mn shares), Northern Trust federal funds target rate will start to 1,518/oz in our previous super-cycle (14.9mn shares), Bank of America rise in 2015, which leaves a good win- report. (9.4mn shares) and J.P. Morgan (8mn dow of opportunity for gold prices to For the year ahead we retain our shares). Despite a lot of volatility and trend higher. After 2015 higher rates previous bullish stance. We see prices switching between investors, SPDR will be bearish for gold and will help rallying to record highs to average USD still rose 1.8% in Q4 in tonnage terms to push prices lower. 1,975/oz, with a break above USD and further increases were seen in the Another trigger for lower prices 2,000/oz likely at some point. Our fore- first part of this year. could be the disappearance of the fear cast average is 10% above the forward However, we understand that part factor, which has helped push people curve for Q4. We are also more bullish of the selling in Q4 may have been due into gold rather than other financial as- than the forward curve for 2013. to forced investor redemptions rather sets. A settling down of the European than reflecting a less bullish view on gold. debt crisis could take some of the steam (Author: Head of Metals Re- Indeed Paulson stated in mid-February out of the surge by investors and there search, Standard Chartered Bank)

56 FINANCE

Private Equity Fuels Growth of China’s SMEs By Zhu Zijun

rivate equity (PE) is lending a hand to China’s small and medium-sized enterprises (SMEs), and PE-backed firms outperform exchange-listed peers, according to a recent study conducted by Bain & PCompany with the European Union Chamber of Commerce in China (European Chamber). “Private equity is helping to fuel growth in China, particularly among SMEs, which are in- tegral to China’s economy,” said Weiwen Han, a partner and leader in Bain’s private equity practice in China and study co-author. “We have observed that revenue growth rate of smaller PE-funded firms tripled compared with similar size listed companies,” he added. According to the study, private equity investments in China are paying both financial and social dividends. The report finds that private equity- billion in 2011, now representing 0.2 percent of China’s gross backed companies in China outperform their publicly- domestic product (GDP), up from more than $8.5 billion financed peer group in the following key areas. in 2009. Comparable ratio seen in Europe is 0.3 percent of PE-backed firms have higher salaries growth although GDP and in the U.S. is 0.5 percent of GDP. employment growth is on par with listed companies at a The study also shows that PE-backed firms yielded rate of 8% annually. Investments in research & development higher tax payments than their benchmarked peers even as (R&D) are two-times greater, as a percent of revenue, than global economic uncertainty continues, reflecting their stron- their publicly-traded peers, whose R&D investments have ger financial performance. Also, PE-financed firms benefited decreased 17 percent since 2009. from the PE advisers on corporate governance improvement. Besides, average annual revenue growth is 2.5-times Moreover, half of PE investments “Go West” and continue higher (34 percent two year compound annual growth rate to contribute to the expansion of China’s domestic consumer versus 13 percent). This is a significant increase versus 2009 goods and retail industry. when the relative difference was minor (27 percent growth “Private equity in China is still young, but the social rate for private equity-backed companies versus 24 percent). and economic benefits to China’s new business model can Further, average annual profit growth is 50 percent now be quantified by this Survey. I note in particular a stun- higher (21 percent two year compound annual growth rate ning 65% of all PE investments made in Inland provinces, versus 14 percent). While the overall compound growth rate and R&D expenses that are flat 100% higher than those of is lower than what was reported in 2009 (39 percent), the listed companies”, said Andre Loesekrug-Pietri, Chair of the relative difference in profit growth rates in 2012 was larger. Private Equity and Strategic M&A Working Group. However, when it comes to environmental initiatives, “The activity in China will certainly continue to pick both private and public firms have opportunities to do more. up as global conditions improve, RMB-denominated funds Besides, PE portfolio companies welcome more support on grow and mature, and private equity firms continue to adopt operational improvements from PE firms according to the best practices from around the world,” he added. survey participants. The study is a follow-up to the inaugural 2009 China The study finds that China continues to be the top desti- private equity study, which was the first of its kind in China. nation for private equity investments in Asia and is on par with It contrasts the performance results between private equity- mature economies such as Japan and Australia/New Zealand. backed companies and publicly-listed companies with major Private equity deal value in China reached approximately $16 operations in China.

57 HEALTH

Industrial Watch

ndustr i al Watch So many frequently I Food Safety, reported scandals keep reminding us that Chinese have the strongest and Who’s at Fault? toughest stomach in the By Alice Yang world.

ood safety problems constantly attract Melamine infant formula, nationally used re- Chinese public attention. This time, cycled waste cooking oil, fake bloody swiftlet it was about Red Bull. A high school nest, tonyred egg yolk, contraceptives-taking student’s mother in Harbin, northern turbot... so many frequently reported scan- China, worried if the drink would do any harm dals keep reminding us that Chinese have the Fto her beloved son, who drank bottles of Red strongest and toughest stomach in the world. Bull during his exams. The mother sent two However, the government may believe bottles of the drink to a local food supervision that the nation’s citizens should be even stron- bureau to check the product for safety. The key- ger. March 8, Gao Hongbin, deputy minister words of “sodium benzoate” and “caffeine”, two of Ministry of Agriculture criticized the over- ingredients contained in the Red Bull drink, sensitive media and public when he did an hit the headlines immediately afterwards. The interview with China Youth Newspaper. Last whole nation was stirred again by the doubt of year, flavacol M1, a kind of carcinogen was “illegal ingredients” in their familiar food. found in excess of the national standard in Red Bull soft drink is a kind of vitamin Mengniu’s milk, a local dairy company. That beverage claiming to have an anti-fatigue func- was a big issue and caught many eyeballs. “The tion. It was registered as a health product in China in 1997. In 2010, it was the second largest seller in China’s health products market and reached the annual sales of RMB 5.8 billion, only behind Amway. With the concern from the public, the State Food and Drug Administration (SFDA) at Beijing, Shandong, Hubei, and Harbin tested 11 batches of Red Bull drinks separately soon afterwards. On February 15, SFDA released its investigation results, stating that no quality or safety problems were present in this functional drink. The two questioned ingredients the drink used, sodium benzoate and caffeine, are in accordance with China’s related regulations and won’t do harm to people if the product instructions are followed. The highly concerned investigation only found some label statements of the drink had to be revised. So, was this false alarm because the Chi- nese are too nervous about their food safety? Investigation to Red Bull stirred people’s concern on food safety.

58 problem was it was an overheated dis- government should update the regu- cussion. You say it will cause cancer, lation from time to time during the but you have to drink tons of it for years implementation.” to have the chance to get the cancer,” The government actually seems said the Minister. Another big issue busy too. “SFDA is revising the regis- last year was about lean meat powder, tration and administration regulations, ie, clenobuterol hydrochloride added in adjusting the function range, testing the pig’s forage, that happened with the method, and function access; and push- Shuanghui Group, a local meat processing to launch the ‘Health Products ing company. The Minister commented Supervision and Management Regula- that “Only a few factories had such tions’ sooner,” said Tong Min, Direc- problem, but the media made it appear tor of Health Product and Cosmetics so widely spread that all the products Department of SFDA. Tong made seem unsafe to eat.” Obviously, in the those statements at the National Health eyes of this governor, the food safety product and cosmetics supervision problem was the fault of over-reporting working meeting on February 21. In media and too-much public concern. fact, the draft of this “soon-will-launch” True? Health Products Supervision and Man- Someone from the public has dif- agement Regulations solicited opinions ferent opinion. Feng Haining, from and comments from the public as early Yangcheng Evenings wrote in the as 2009, three years ago. Was it because newspaper and commented Minister the market is too difficult to supervise Gao’s words that, “He is actually is or the rule-makers worked too ineffi- defending the problem food, or defend- ciently? ing himself. In a healthy and normal “SFDA will raise standards of society, any slight food problem should health products to ensure the quality raise big concerns from the govern- and safety of the products,” claimed ment. Finding more ways to solve the Tong. However, Dong Jinshi com- problem, instead of making excuses for mented that “It is a huge system to their neglect of duty, should be the con- supervise the products quality. To raise sensus of the government.” standards is a necessary method, but China carried out the “Food Safe- more importantly, it requires regular ty Law” in 2009, however there are still supervision.” continuous problems occurring. “The On the problem of why the health Food Safety Law is a law only of gen- products market is in such a mess for eral requirements. For specific fields, over a decade in China, Dong ex- we still need to have more detailed plained three reasons. “First, the drive regulations for each industry,” said Wu of company’s profit leads the companies Yuefang, General Secretary of Soybean to make fake advertisements, even Products Committee of China National produce fake or unsafe products. Sec- Food Industry Association in a recent ond, the regulation lags behind, many interview with the Science and Tech- industrial standards are missing or out nology of Food Industry magazine. of date. Also manner in which multiple Dong Jinshi, Secretary-General departments oversee various aspects of the International Food-packaging adds to the confusion. In the past, the Association, also an expert in food health products were administrated by safety, received an interview from the Ministry of Health, now it is under China Radio Net saying, “The regula- the administration of SFDA. Third, the tion should be very detailed, for ex- customers lack proper education to tell ample, how to deal with the products whether or not the quality of the health that already exist, the products in the products is good. They can only rely on future, new products, and what pun- the advertisement but truthfully have ishment one will receive if any clause is no real result,” said Dong. disobeyed. Without details, companies And that helps explain well why More regular supervision is more useful and will still find a lot of blind regulation the food safety is such a big problem in effective than lifting the standard only. zones for loopholes. Meanwhile the China now.

59 EXPO

Industrial Watch ndustr i al Watch I

800 Billion Yuan Chinese Gift Market By Cui Xiaoling

s the Chinese saying goes, al Gifts, Premium & Houseware Fair Bureau of Statistics and the Ministry “Courtesy requires reciproc- held in China International Exhibition of Commerce and some industrial data, ity. It’s impolite not to give Center from March 14 to 17 offered a individual demand for gifts is valued at as good as one gets.” Giving glimpse into China’s gift industry. Held 505.5 billion yuan per year and demand presents is one of China’s oldest tradi- by Reed Huaqun Exhibition Co., Ltd, for gifts of organizations at 262.9 bil- Ations. Chinese people give presents the gift show is the called the No.1 Gift lion yuan per year. That means a 768.4 when they meet for the first time, part Exhibition in North China. billion yuan gift market in China. from each other, ask for a favor, do Huge gift market Even though gift prices go up ev- business, and want to express gratitude. ery year, there are more and more peo- However, as time goes by, the fine cul- There are no authoritative statistics ple buying gifts. There is no downturn ture of sending gifts has evolved into on how much money Chinese people for the gift market. On the contrary, a public relations competition, and the spend each year on gifts, since the gift the worse the overall economic climate gifts become associated with benefits market covers a large number of in- is, the more people have to spend on and social status. Gifts are becoming dustries and is complex and often not gifts in hope for turning things around. daily necessities in China. Therefore, it transparent. Noticing this trend, many tobacco and is not surprising to see a huge gift econ- According to the estimation of alcohol brands such as Maotai have omy in the country. The 40, 000 square China Gifts Industry Research Insti- shifted their targets from the popular meters 26th China Beijing Internation- tute based on the data of the National market to high-end gift market, by lift-

60 ing the prices. High and rising price makes a product high-end. It’s difficult to know which company takes the largest share of the Chinese gift market, since everything could be a gift. What gift to give is determined by its recipient. When asked what gifts her company often gives to clients, Yi Na, a purchasing clerk with New Trend Integrated Communications Group told China’s Foreign Trade reporter, “I can’t tell you a specific kind of gifts. We have to buy different presents for different clients, as each of them has unique tastes and liking.” Popular gifts Zhang Xiaopeng, Executive Presi- dent of China Gifts Industry Research Institute said that five years ago with the rapid development of the real estate industry, home textiles, electrical appliances, and kitchen appliances were popular gifts. However, in recent years, electronic products such as cameras, e- book and tablet PCs have gained popularity. For example, 60% of HanWang e-books were sold to gift buyers. Luxury goods are also a major category of gifts. A huge amount of luxury goods are bought to be used as presents in China, a notable feature unique to jewelry, stones, coins, stamps, badges, booths. Booths displaying traditional the Chinese luxury market. According ceramics, jade, and calligraphy which presents such as souvenirs, ornaments, to a research report on Chinese luxury are of artistic and historical value have small gadgets, and paintings by nobody goods market released in December become popular gifts. They are em- did not attract many visitors. Instead, 2011 by a consultancy company Bain, bodiment of the rich Chinese culture booths displaying famous brand elec- Chinese consumers spent 212 billion and their market value is on the rise. tronic products, artistic works, ceramics, yuan on luxury goods in 2010. 30% New trends tea ware, customized shirts, and creative of the consumption was driven by acoustics were inundated. the need to send gifts. Louis Vuitton, Gifts of practical utility used to be The reporter found that custom- Chanel and Gucci are the most popular popular. However, nowadays, people ized services are available for most of the luxury brands in China. like gifts that are of famous brands, presents, such as jewelry, tea pots, shirts To show higher social and econom- creative, customized and of collection and suites, and electronic products. ic status is the main reason that Chinese value. To build famous brand, inno- Aigo digital picture frames offer people give luxury goods as presents. vate, and customize is the future trends customized services for companies. The “Luxury goods as business gifts can of the gifts industry. Along with the reporter saw a picture frame customized reflect my tastes and social status. They fast development of the gifts industry, for a bank. It has a VI background of can also make the recipient feel valued the industry chain is gradually broken the bank, built-in presentations on the and respected. I believe they can help me down to manufacturers, distributors, bank’s business, and introduction of its better achieve my business goals,” said a terminal service providers, purchasers, services. Customers getting the picture luxury consumer surveyed by Bain. recipients, and gifts-recyclers. frames as presents can have a good un- “Gifts are first of all commodities. When asked what are the most derstanding of the bank. Therefore, the They are inseparable from the trends important considerations when buying gifts are also a good channel of publicity. of social consumer goods,” said Li Xi- presents, most of the purchasers inter- “We receive a great number of aopeng, Executive President of China viewed by China’s Foreign Trade reporter customized orders almost every day. Gift Industry Research Institute. In said the presents have to be of famous Companies, especially client-intensive recent years, particularly after 2008, brands and creative. None of them ones, are very interested in thanking Chinese people have been enthusiastic mentioned price or practical use. This is their clients with customized gifts,” an about collecting works of art. Artifacts, reflected by the popularity of the show Aigo sales person told the reporter.

61 Foreign Insurance Companies Eye Growth in China

By Richard Zhu

hough the expansion of foreign insurers in China of commitment by the foreign insurers’ parent companies has been challenging, foreign insurance compa- remains robust. nies still view China as a very attractive market, China as a growing market according to a recent survey by PwC. The survey shows that despite the challenges of pen- China’s insurance market, and the bancassurance etratingT the Chinese market, foreign insurance companies channel in particular, is characterized by fierce competi- continue to stake their future in China. The level of market tion, constantly evolving regulation, significant variations growth remains exceptional and in part compensates for the in market dynamics between different provinces and cities, disappointing success on market penetration. And the level product offerings that may not suit the long-term needs of 64 THE RELATIVELY LOW MARKET SHARE OF FOREIGN INSURERS IN CHINA IS BOTH A CHALLENGE AND SIGNIFICANT OPPORTUNITY. PREMIUMS ARE EXPERIENCING HIGH LEVELS OF GROWTH WITH LOW LEVELS OF MARKET PENETRATION, SHOWING WHY CHINA IS SUCH AN ATTRACTIVE MARKET.

consumers, and divergent objectives amongst key partici- optimal business model to capitalize on China’s enormous pants, said a report by KPMG. growth potential. Many insurers are questioning their prospects in the Foreign insurers’ position in China China market and how to implement a successful bancassurance strategy. Some are concerned that in the short term, According to the PwC survey, almost all the partici- the opportunities for profitable growth are limited. Despite pants are highly dependent on the Tier 1 cities (Beijing, these challenges, analysts from KPMG are optimistic about Shanghai, Guangzhou and Shenzhen). The foreign life the future prospects for the market. insurance companies are seeing a rapid growth in annual The government has mulled favorable policies for the premiums in 2011. By 2014, 12 of the 18 participants of insurance industry. “China will expand the field of insur- the survey forecast growth above 30%. The foreign prop- ance services, and actively develop liability insurance, credit erty and casualty companies are also growing at a fast rate. insurance, explore the development of catastrophe insurance Looking to 2014, growth rates are expected to be in the and innovative ways of insurance marketing, regulate devel- 30% to 50% range. opment of the insurance intermediary market and promote Swiss Re’s projections for 2010 to 2020 and 2010 to construction of the reinsurance market, as well as establish 2015, show China with life direct premium growth rates of and improve the insurance services system,” according to a 8.3% and 9.1% respectively and non-life premium growth statement on the Chinese Insurance industry made in the rates of 9.2% and 10.4%. 12th Five-Year Plan (2011-2015). However, the survey shows that the market share of Also, the recent regulation (and in particular CBRC these foreign insurers hasn’t moved much either, with life 90) will have a positive long-term influence on the market insurers hovering at 5% and property and casualty insurers and bancassurance channel. at 1%, the lowest in Asia. The figures are not expected to According to the KPMG report, over the longer term, change dramatically in the next three years. The announce- positive macroeconomic and social factors will also drive ment in May 2011 that foreign insurers will be allowed reform. The ageing population and concern over the ad- to enter into the mandatory third party liability (MTPL) equacy of the safety net provided by the health system will market may help boost the pie for property and casualty create significant additional demand for insurance. Already companies. the number-one driver for consumers purchasing insurance “The relatively low market share of foreign insurers is protection in the event of an accident or illness and to se- in China is both a challenge and significant opportunity. cure access to healthcare services. Insurance companies will Premiums are experiencing high levels of growth with low need to respond by offering a range of products that cater levels of market penetration, showing why China is such for these evolving demands. an attractive market. However, selecting the right business The government is also keen to promote long-term prod- model to capture China’s growth potential will be key,” said ucts and retirement solutions, for example, the recent pilot Tom Ling, PwC Insurance Leader for China. scheme permitting sales of variable annuity products. The an- “Some foreign insurers are particularly looking for- alysts from KPMG believe legislation to develop the pension ward to the increasing internationalization of the renminbi, sector is an important catalyst to jump-start further market a move they believe will better differentiate themselves by reform and create significant momentum in the future. encouraging greater product innovation and provide better Therefore, the foreign insurers are searching for the hedging opportunities,” Ling added.

65 THE SURVEY PARTICIPANTS EXPRESSED A NUMBER OF CONCERNS REGARDING THE FUTURE, NATURE AND DIRECTION OF THE INSURANCE MARKET.

Foreign insurers’ concerns The Pwc survey participants expressed a number of concerns regarding the future, nature and direction of the insurance market. They are concerned about the macro economic environment, including inflation and monetary policy. Within the insurance sector, they raised a myriad of issues including future capital requirements, poor investment returns, bancassurance and its impact on distribution and product mix, increased price competition, agency system overhaul, lack of product innovation, branch approvals, human resource talent and regulatory change, according to the survey. The survey also shows that the participant’s other concerns include MTPL, Bancassurance, agency reform, drivers of change, future realignments, competition, difficulties in doing business, etc., as following: MTPL. The announcement in May 2011 that foreign insurers will be permitted to enter into the MTPL market may provide some exciting opportunities. However, the form and timing of such permission is still unclear. A number of foreign insurers are already market and recognize that the foreign companies active in parts of the auto insurance sector and look forward to being represent no threat to their market dominance able to capitalize on their recognized global expertise in this enor- and control. In second place are other foreign mous market. Two participants predicted the MTPL market could insurers but rising fast in third position are the open up to foreign insurers in 2012. The others expected the process bank subsidiaries. to take longer. Difficulties in doing business. The foreign Bancassurance. Banks play a dominant role in the distribution insurers have in previous surveys found the regu- of insurance, and with their new role as manufacturers of insurance latory environment to be the most difficult aspect products they are positioned to become even more dominant. This of doing business in China. However this year, presents special challenges to foreign insurers that have in the past domestic company competition has replaced relied heavily on this channel. Some of these companies will contin- regulation. Finding and keeping good person- ue to benefit from their bank relationships, but others, notably the nel was placed in second position also ahead of smaller insurers with less recognizable brands, will be challenged. regulation. Another important challenge is the In addition, some banks have formed joint ventures with foreign low level of brand recognition for the foreign in- insurers. surers. The challenges of distribution and limited Agency reform. An on-going development is reform of the market share compounds the need for improved agency system. There are high levels of turnover among agents and brand awareness among foreign insurers. many participants recognized that the quality, training, productivity RMB internationalization. The partici- and remuneration of agents remains a key challenge. Several foreign pants believe that the trend towards increasing insurers have specifically focused on the agency system to serve the internationalization of the currency will benefit market. them and encourage product innovation. In Drivers of change. The top three drivers of change in 2011 were time, it will allow them to more effectively dif- regulatory changes, entrance by the banks into the sector and the ferentiate their products in relation to the do- strength and presence of the domestic insurers. In 2011, the economic mestic insurers. cycle was also recognized as an important trigger of change. Dual investments. The life participants Competition. The primary competitors to the foreign insurers strongly support the concept of investment in a are the large domestic insurers. All the participants believe that these number of insurance entities in China. In the large insurers can compete effectively with them in the domestic past, both ING and MetLife have been required

66 to divest holdings in other foreign joint ventures. Going foreign insurers which are willing to expand in China. First forward, both the foreign life and property and casualty is relationship. As there are a number of structural areas companies envisage that it might be desirable to become where foreign insurers are placed at a disadvantage, leverag- shareholders in domestic insurers. This would facilitate an ing the businesses’ broader relationships is essential. For- accelerated geographic expansion which the foreign insur- eign insurers with a large SOE partner, for example, should ers have found to be difficult given the strict regulatory use the strength of their partner’s banking relationship to parameters. Some foreign insurers already have holdings in help promote their insurance business. the major domestic insurers. For example, Allianz in CPIC In China, foreign insurers find it difficult to compete and HSBC in Ping An. as they have more limited investment options compared to Human resources. Availability of human resource tal- their domestic peers, and therefore cannot generate as at- ent is a critical issue and participants feel under pressure tractive returns. Banks will often favor insurers with which from domestic companies who offer attractive packages to they have significant business or make use of other services their staff. Branch expansion is also impacted by the avail- and bank products. ability of key staff in Tier 2 cities and the on-going loss of Second is customer segmentation. The more successful staff in these cities to new foreign branch approvals. strategies focus on customer segmentation rather than pur- New branches. Participants seek the ability to expand suing market share. Foreign insurers in particular are in- their branch networks more aggressively. Some are subject creasingly adopting a segmented customer strategy, target- to lengthy approval processes and are unable to apply for ing high net worth individuals or other niche areas within applications to be reviewed concurrently. Property and ca- the market. sualty companies will find it difficult to enter the MTPL For foreign insurers which can not compete on price market with their existing skeletal branch networks. with their domestic peers, targeting protection products, Regulatory alignment. Although China continues to where consumer are less price sensitive and product features advance on the regulatory front, participants still believe it are seen as more important, can deliver success. lags behind both Europe and the United States. Six partici- When choosing their banking partners, the majority pants believe it is on a par with these jurisdictions. Some of of respondents identified the customer base and specifically those who rated it behind commented, that it was level on the proportion of middle- to high-end customers as a criti- written regulation but behind on application. The majority cal consideration. continue to believe that the risk management systems of Customer relationship management within the banks domestic companies are not yet sufficiently robust. A num- is often impeded by the poor quality of the underlying data ber however, qualify this statement by exempting several or a lack of investment in systems that allow effective data large well known domestic players. mining and tracking. For example, there is limited tracking Outlook for the future of credit card patterns and the “transactors” (i.e. those who pay their balance in full each month) and resolvers (who do The survey shows that the participants anticipate more not pay in full each month) – transactors have proved to be foreign insurance companies to enter the market. Around a much more attractive segment for insurers. half expect a modest increase, five to 10 new companies Another is technology. A technology solution is im- over the next three years. Participants also expect further portant in minimizing disruption: the system has to allow consolidation and rationalization in the market. capture of the customer information, system generated Prudential Financial (US) and Fosun recently an- quotes and straight-through processing for underwriting. nounced a new life joint venture. Ergo Insurance, a subsid- A further challenge relates to launching new products. iary of global reinsurer Munich Re, announced in January The large number of insurance partners and the volume of 2011, that it was setting up a 50-50 joint venture with the new products often lead to a long delay in implementation. Shandong State-owned Asset Holding Company (SSAIH). The insurer must liaise with the central IT department to Participants continued to cite participating products, set the product code in the system and then provide testing, universal life, annuity products and critical illness as prod- a process which can take several months. ucts in demand. Interestingly, they also noted growing in- The insurer must also complete the appropriate new terest in protection products. business proposal form and train the branch sales staff. Personal accident, travel and health can expect contin- As with any logistical and complex process, it is im- ued growth. Auto insurance may emerge as a new growth portant to know how to manage the various stages and as- area and provide valuable cross-selling opportunities. sociated documents to maximize the speed of implementa- Participants showed interest over the following years tion. in traditional insurance products, ILP health and protec- The more advanced insurers are also developing tion products. On the property and casualty side, there is web-based systems with online application functionality, strong interest in auto insurance, personal accident, group straight-through processing, a query system for the sales accident, health and cargo and transportation. team, online claims functionality and a customer service Suggestions for foreign insurers offering. They are also employing tablets at the point of sale for demonstrating product features and submitting online The KPMG report offers some suggestions for the applications.

67 ase S tudy c Golden Trails: A Roadmap Leading to China’s Internet Industry By Liang Tao

n February 19, 2012, Wal- Mart Stores, Inc. disclosed its additional investment in Yihaodian, a fast-growing electronic commerce website in China, Omaking Walmart’s total ownership stake in Yihaodian to reach approximately 51%. It was Wal-Mart’s second investment for the purpose of control- ling Yihaodian, upon its initial investment in it in May of 2011. According to Wal-Mart, closing of the transaction would be subject to Chinese government regulatory approval. Obviously, such approval would be the product of merger control review process adminis- tered by the Ministry of Commerce of PRC and its local counterparts (collectively, “MOFCOM”). internet industry is part of value-added websites with non-profit making pur- Wal-Mart’s aggressive acquisi- TB sector. The Ministry of Industry and pose, the website operators (which can tion is not a unique example of foreign Information Technology of PRC and its either be individuals or entities located investors’ good appetite for China’s local counterparts (collectively, “MIIT”) in China) only need to register with the promising internet market participants. is the competent regulatory authority. MIIT at provincial level. 360Buy is one of the biggest B2C on- How to operate a website in Foreign individuals or entities are line shopping platforms in China. Many China? not admitted to launch profit-making famous foreign institutional investors, websites in China, as only companies such as Tiger Fund and Digital Sky In order to engage in China’s inter- incorporated in China are allowed to Technologies which is an international net industry, the first thing is to estab- operate the profit-making websites. In investment firm focusing solely on the lish and operate a website in China. In addition, such operating companies can internet sector, took part in 360Buy’s practice, a website operator mainly re- either be “pure” Chinese domestic com- third-round $1.5 billion funding. Al- fers to the internet information provider panies, or Sino-foreign joint ventures most all of China’s internet giants, e.g., (“ICP”) which is an abstract term cited in which foreign investors hold at most Baidu, Sohu and Alibaba, had attracted from the Measures for the Administra- 50% equity. Foreign individuals or enti- strategic foreign investment even when tion of Internet Information Services, ties are also not admitted to launch non- their founders were nobody. a regulation issued by China’s State profit making websites in China. China’s internet industry has been Council in 2000. Under China’s cur- Specific industry requirements heavily regulated, especially for foreign rent internet regulatory regime, websites investors. The internet industry generally established or operated by individuals or Apart from obtaining the license falls within the industry of telecommuni- entities located in China can be divided and permit from the MIIT, internet in- cation. According to the Foreign Invest- into two categories: (i) websites with dustry players are also requested to meet ment Industrial Guidance Catalogue profit-making purpose; and (ii) websites specific industry requirements. Prior to newly revised at the end of 2011, telecom- with non-profit making purpose. applying for an operating permit or reg- munication business (“TB”) belongs to For the websites with profit- istering the internet information services the “restricted” catalogue and is further making purpose, the website operators for the record, an ICP whose services re- grouped into value-added TB and basic (which must be companies incorporated late to information, the publishing busi- TB. Foreign investors’ stake percentage within China) are required to apply with ness, education, medical and health care, is confined to 50% for value-added TB the MIIT for the Value-added Tele- pharmaceuticals, and medical apparatus and 49% for basic TB. Exactly speaking, communications Service Permit. For the must first obtain the approval from the

68 relevant supervisory authorities. internet companies. To bypass the in- sions”) which came into force on March For example, a B2C online shop- dustry restriction, foreign investors will 15, 2012. The Several Provisions are ping company proposing to sell drugs establish a wholly foreign owned enter- designed to regulate the bloody com- and medicines has to not only apply prise (“WFOE”) as a bridge to connect petition among ICPs, end the negative with the MIIT for Value-added Tele- the offshore holding company with sum game, and finally protect custom- communications Service Permit, but the onshore operating company. The ers’ legitimate interests. We have sum- also submit applications to the State onshore operating company is a “pure” marized the major points of the Several Food and Drug Administration of PRC Chinese domestic company. A series of Provisions as below for your reference: or its provincial counterparts for ap- contractual agreements will be entered Prohibiting ICPs from mali- proval. In other words, if internet mar- into by and between the WFOE and ciously making their products incom- ket players’ businesses relate to specific the operating company, with a view to patible with the services or products of sectors, including publishing business, empowering the foreign investor to con- their competitors; education, medical services, etc., they trol the management of and enjoy the Prohibiting ICPs (who run plat- need to obtain both special industry ap- profits of the operating company. forms with a view to rating internet proval and MIIT approval. Of course, According to Liu Qiangdong, services or products) from manipulating they also have to go through the routine Chairman of 360Buy, all of China’s the rating results or misleading custom- foreign investment approval procedures internet companies receiving offshore ers regarding the rating results; with the MOFCOM and company investment have adopted the VIE Struc- Prohibiting ICPs from engaging registration procedures with the admin- ture. Mr. Liu’s comment is made against in any acts (which may damage custom- istration for industry and commerce. the backdrop that China’s regulatory ers’ legitimate interest), for example, In certain sensitive sub-sectors, for- authorities are trying to challenge this misleading or deceiving customers, eign internet market players also need to market practice after Alibaba’s Chair- changing customers’ setting without address potential politic or public interest man Jack Ma triggered a debate regard- customers’ consent, and delay in the pro- concerns. For example, Google adhered ing VIE Structure. Recently, China’s vision of services without justification; to China’s internet censorship policies relevant competent authorities have Requesting ICPs to provide before March of 2010. On March 22, expressed their concerns over the VIE customers with options to uninstall any 2010, after talks with Chinese compe- Structure. It casts a cloud on the future portion of the bundled software pack- tent authorities failed to reach an agree- of the popular VIE Structure. Foreign ages; ment, Google discontinued its services investors may want to take a more risk- Requesting ICPs to highlight in China, and redirected Chinese cus- averse approach in future or try to miti- the function button which is used to tomers to its Hong Kong server, which is gate the risks of existing VIE Structure, close the pop-up advertisement; and outside the jurisdiction of Chinese cen- for example, transferring assets and busi- Requesting ICPs to duly protect sorship laws. It is reported that Google’s nesses from the operating company to customers’ personal information, and Chinese market share has declined by the WFOE to the extent permitted by prohibiting ICPs from utilizing custom- over 50% since its withdrawal from Chi- law, perfecting the corporate governance ers’ personal information for any pur- na’s market. Foreign investors may want to enhance ties between the WFOE and poses other than the purpose of provid- to learn a lesson from Google China’s operating company, etc. ing internet services. case, and carefully study China’s internet New rules to regulate fierce Behind the big transactions or compliance requirements. competition among ICPs fierce competitions above-mentioned, VIE structure there is a large Chinese internet mar- We also would like to draw for- ket with well over 500 million poten- The “variable interest entity” struc- eign investors’ attention to the fierce tial internet customers. With a con- ture (“VIE Structure”) is an investment competition in China’s internet market. tinually expanding economy, rapidly structure widely adopted in China’s in- A bitter dispute between Qihoo and modernizing infrastructure, emerging ternet industry. One of VIE Structure’s Tencent is a vivid example. Such dispute business community and customer aims is to bypass the industry restric- was triggered by the fact that Qihoo’s base, China will provides enormous tions imposed by Chinese government “360 Safeguard” becomes not compat- business opportunities to foreign in- on foreign investors. China has imposed ible with Tencent’s major product “QQ”. vestors. However, when initiating their rigid restrictions on the foreign investors Finally, both Qihoo and Tencent sub- investments, it is advisable for foreign proposing to invest in China’s internet- mitted their complaints to the MIIT investors to do an overall research and related business. As internet industry for judgment. This high profile dispute get a deep understanding of China’s falls within value-added TB industry, spurs the MIIT to issue new measures internet regulatory environment. In a foreign investors at most can hold 50% to crack down on unfair competition in word, obtaining an informative road- shares of China’s internet companies internet industry. map is definitely a critical step for a and are subject to rigid and protracted On December 29, 2011, the MIIT gold rush journey. scrutiny and review. That’s why most of issued the Several Provisions on Regu- the foreign investors have adopted VIE lating the Market Order of Internet (Author: from an international Structure when investing in Chinese Information Service (“Several Provi- law firm)

69 ASIA-PACIFIC Northeast China Enhances Ties with Northeast Asia By Richard Zhu

ortheast China is strength- China-DPRK cross-border self-driving egional T r ade & I nves t men ening relationships with tourism, making an important progress

R Northeast Asia with the 8th in the integrated development of North- China Jilin·Northeast Asia east Asian tourism. Investment and Trade Expo (Northeast Second, the expo will showcase new AsiaN Expo) to be held from Sep. 6 to 11, elements of Northeast Asian culture. The 2012 said Chen Weigen, Vice Governor Cultural Industry Pavilion will make a of Jinlin Province, at a press conference debut by showcasing advanced cultural on March 16. and creative products and key projects Currently, the preparation work from Japan and ROK as well as Euro- for the expo is going on smoothly. Ac- pean and American countries. It will of projects. cording to Chen, this year’s expo will be also feature national cultural commodi- “As an important platform for of a larger scale compared with previous ties from DPRK, Mongolia and Russia, economic exchange and opening up to years. The expo is expected to attract and cultural products and projects from outside, the expo is playing an active role 100,000 exhibitors and visitors from China. Besides, the 3rd Northeast Asian for a win-win situation in the regional Japan, Russia, the Republic of Korea, Culture and Arts Week will be held dur- development,” said Chen Jian, Vice Min- (ROK), the Democratic People’s Re- ing the expo. Further, acountry will be ister of Commerce. public of Korea (DPRK), Mongolia and chosen to highlight its development of “The expo has become a bridge other regions, including 10,000 foreign cultural industry. between Northeast China’s old indus- merchants, senior officials, representa- Third, the first World Purchaser trial bases and the Northeast Asia,” tives from World Top 500 and China Meeting will be held during the expo said Wang Shunian, inspector with the Top 500 enterprises, etc. so as to promote effective matchmaking Northeast Revitalization Division of The exhibition center for the expo among purchasers and pursue a higher the National Development and Reform has 8 pavilions with 2,600 standard trade turnover. Commission (NDRC). “In a sense, it booths, including the Northeast Asian Fourth, the expo will eye on new is changing the outlook of Northeast Tourism Pavilion, the Cultural Indus- economic themes and topics, including China’s opening up to Northeast Asia try Pavilion, the Taiwan Commodity the construction of the China-Japan- and the world as well.” Pavilion, the Hong Kong Commodity ROK Free Trade Zone, and the develop- Japan, Russia’s Far East, the ROK, Pavilion, the Investment Cooperation ment of world emerging industries and the DPRK, Mongolia and China’s prov- Pavilion, the Foods and Pharmaceuticals domestic real economy. The 6th High- inces of Heilongjiang, Jilin, Liaoning Pavilion and the High-tech and Elec- level Forum on Northeast Asian Eco- and northeastern part of Inner Mongolia tronic Products Pavilion. These pavilions nomic Cooperation and the 2nd Global Autonomous Region make up Northeast will give a stage for quality and featured Economic Leaders Summit will be held. Asia, which covers a combined area of products and key cooperative projects Last, the expo will function as a nearly 9 million sq km and is home to from Northeast Asia and other areas. Of platform for investment cooperation. The about 300 million people. Combined particular note, an outdoor area will be Investment Cooperation Pavilion to be gross domestic product (GDP) of North- set up for SMEs to showcase their inno- set up will showcase the area’s invest- east Asia accounts for about one fifth of vative products and featured commodi- ment environment and major projects, the world total and more than 70 percent ties. especially the Changchun Xinglong of that of Asia, according to China Daily. There are several new highlights Comprehensive Free Trade Zone just ap- The expo has been held for 7 con- of this expo, said Chen. First, the expo proved by the State Council, the Tumen secutive years since 2005, with a total will focus on the integrated develop- River (Hunchun) International Coop- of 1.8 million visitors and 320,000 ment of Northeast Asian tourism as the eration Pilot Zone to be approved, the merchants. The trade turnover at the neighboring countries in the area are China-DPRK Ra Son Economic and 7th expo rose to US$ 945 million from abound in tourism resources with their Trade Zone and the China-Singapore US$ 372 million at the first expo and own features. Last year, China launched Foods Zone under construction. Ad- the signed projects totaled to 1579 in the projects such as the China-DPRK- ditionally, various matchmaking events number, worth of RMB 810 billion, said Russia transnational ring tourism and the will be organized to promote the signing Chen.

70 EUROPE

hina became the second largest source of invest- China Became ment in the Netherlands in 2011, with the volume of 29 investment projects totaling to 43 2nd Largest Investor Cmillion Euros, according to a report by the Netherlands Foreign Investment Agency (NFIA). Over half of the investment proj- in Netherlands ects came from Asia, followed by North America and from Europe. At a country level, the USA remains the most important source of investment projects By Zhu Zijun (46), followed by China, Korea (25) and Japan (24), the report said. The 2011 year-end results showed a 50 percent growth in investment projects from China to the Netherlands. The Netherlands is now one of the most “The Netherlands still preferred locations for Chinese compa- has a favorable investment nies that are expanding their European climate. Companies favor the operations, setting up their European Netherlands for its position as distribution centre, European head- a stepping stone into Europe, quarters or regional R&D centre in the its language and educational Netherlands. skills, as well as its fiscal cli- So far there have been over 320 mate,” said NFIA Commis- Chinese enterprises doing business in sioner Bas Pulles. “And foreign the Netherlands. Most of the Chinese investors provide direct jobs.” enterprises are engaged in setting up The Netherlands has been branches in the Netherlands for sales China’s second biggest trad- and logistics in Europe. Seven of them ing partner in the European have established their European head- Union for eight consecutive quarters including China International years. Bilateral trade between Travel Service Limited (CITS) and the two countries reached a Shanghai Yongli Belting Co., Ltd, The year 2012 marks the 40th record high of 56.2 billion U.S. while four of them have set up holding anniversary of diplomatic ties between dollars in 2010, while investment from companies. Businesses of these enter- China and the Netherlands. “Look- the Netherlands in China has so far prises mainly cover consumer goods, ing to 2012, Chinese investment in the amounted to 12 billion U.S. dollars. electronics, ICT, industrial engineer- Netherlands will have several major According to the Deloitte report, ing, agricultural products and chemical trends such as increasing their Euro- Chinese goods worth approximately 31 engineering. pean sales and logistics centers, R&D billion Euros were imported in 2010, China’s investment in the Nether- projects and European Headquarters, an increase of 41 percent over 2009. lands is highlighted by expansion plans strengthen M&A and expansion,” said This is about 9.3 percent of all imports of some enterprises which already have Guy Wittich. in the Netherlands. This makes China branches there. Huawei, a Chinese Deloitte describes the Netherlands the number 3 country for imports. telecom giant, for example, has estab- as the “Gateway to Europe” in its report Studies showed that trade between the lished an European Headquarter of its of the country. Even in the context of two countries has grown on average 5 business division. Yongli Belting set up continuing economic concerns in Eu- percentage points faster than China’s an international holding company and rope, the Netherlands remains a stable, trade with the rest of the world and 4 R&D center following its European highly competitive and increasingly percentage points faster than China’s headquarter founded in 2009. attractive location for foreign compa- trade with its main partners in the last “It signifies that the business and nies to establish operations. The Neth- decade. market environment in the Netherlands erlands posted record foreign direct The Netherlands’ exports to China is fit for Chinese enterprises’ long-term investment (FDI) results for 2011, with increased by about 17 percent to over 5 growth and beneficial for their success the NFIA supporting the attraction of billion Euros in 2011. Year after year, in the European market,” said Guy 193 projects, representing 4,358 jobs the exports have increased since 1999. Wittich, the Netherlands’ Consul & and planned investment of US $1.95 Since 2005, the Netherlands’ exports to Executive Director for China. billion. China have doubled in volume.

71 EUROPE The Role of China in the European Debt Crisis

By Cai Hongbo, Yan Pei egional T r ade & I nves t men

R 20 finance ministers’ meet- cantly, far higher than other countries. buy euro-zone bonds, meanwhile in- ing closed at the end of this However, if the EU falls into a long-term crease investment in European countries, February focusing on how economic downturn, it is bound to seri- especially direct investment of RMB. to effectively prevent the ously affect the China-EU trade. These measures can not only greatly al- deterioration of European sovereign Third, rescuing the European debt leviate the debt crisis in Europe, but also debtG crisis and calling for the “self-help” crisis by proper ways helps to resolve eco- speed up the RMB internationalization of euro. Greece is the current focus nomic and trade barriers, enhance mutu- and urge the EU to grant China’s market of the media attention, but seen from al confidence and develop the European economy status. Figure 1, the other euro countries aren’t market, which are conductive to China- And then, China should draw sup- better. Portugal, Ireland, Spain are all EU trade cooperation and development port from IMF in order to reduce the dancing on the edge of the cliff. Started in the future. rescue risks and difficulties, increase the from late 2009, this debt crisis made it In summary, China should lend security of the rescue funds, and raise difficult or impossible for some coun- a helping hand to Europe and play a China’s position in the IMF as well as in tries in the euro area to re-finance their unique role to solve the debt crisis. the world monetary system. government debt without the assistance How could China play a role? Besides, for Chinese enterprises, of third parties. At the same time, Chi- the European debt crisis provides an na has a high foreign exchange reserve, First and foremost, the truly effec- overseas acquisition opportunity. At reaching about 3 trillion U.S. dollars tive way for China to help Europe get the beginning of this year, Shandong in 2011, and Europe has been hoping rid of the debt crisis as soon as possible, Heavy Industry Group bought 75% China to lend a helping hand. is to increase investment in EU. This stake in a major European yacht manu- Should China play a role? requires not only positive investment aids facturer, Italy’s Ferretti Group, €374 but also the EU's sincerity to cooperate. million. Heavy Industry Holdings Chinese netizens consider “saving EU should not block tightly on Chinese Co., Ltd. acquired 100% of Germany’s the European debt crisis” as “the lend- high-tech any longer, but more open to Figure 1 Long-term interest rates of all euro ing from a poor boy who just can afford attract the Chinese capital. zone countries (2011.10.09-2012.02.12) bread to the rich”, which is an unreason- As one of the members of G20, the able behavior. However, the undeniable Chinese leaders have frequently declared fact is that poor boy and the rich live in to help resolve European debt problems a same global village, thus in the back- in a positive way. As early as September ground of global economic integration, 14, 2011, Premier Wen Jiabao said in China and EU are so closely related. the Summer Davos Forum that China First, the EU is the comprehensive believes that the European economy can strategic partner of China. The collapse overcome the difficulties, and China was of the euro will make the U.S. dollar be- willing to expand investment in Europe. come the sole international reserve cur- On January 15, People’s Bank of China rency once again, so the EU’s prosperity Governor Zhou Xiaochuan said China and the euro’s strength are in accord with would continue to, under the principle of China’s strategic interests. security, liquidity and increasing value, Secondly, the EU has been China’s invest in European government debt, largest trading partner for seven years, and get more involved in efforts to help and is now China’s largest export desti- resolve the European debt crisis via all nation. As provided in Table 1, China- possible channels such as the IMF and EU trade volume increased by 4.7% EFSF. in February this year, of which import For another, in the current Europe- growth (14.7%) is particularly signifi- an debt crisis, China should appropriately Data source: European Central Bank

72 EUROPE

Table 1 the total value of China Import and Export Country (Region) in January, 2012 Putzmeister equity for €324 million. (Unit: US$ thousand) And China State Grid Corporation purchased 25% of the shares of the Trade Value year growth（±%） Portuguese National Grid Company Exports and with the trading price of €387 million. Export Country Exports and Imports Exports Imports Imports Exports Imports A series of acquisitions indicate that the World 260424706 114470693 145954014 7.3 6.9 7.7 overseas mergers and acquisitions of India 4937432 2647977 2289455 -5.1 -1.2 -10.7 Chinese enterprises are entering a new Japan 26339593 10426811 15912782 0.5 14.9 -9.3 phase. Korea 19647742 6540431 13107311 11.7 21.2 6.9 ASEAN 25946491 10768395 15178097 9.1 12.7 6.1 How big is this role? EU 37116644 19355617 17761026 4.7 -1.1 14.7 South Africa 3451070 572342 2878729 -1.2 3.5 -2.9 Foreign media said that facing Brazil 5202131 1667474 3534656 10.6 10.9 10.4 China’s ‘stubborn’ attitude to the EU’s Canada 3486919 1425816 2061102 3.7 6.3 1.3 carbon tax, the EU chose to remain US 30592974 19359425 11233548 9.2 12 3.1 silent because of its demand in China, Australia 8441259 1816133 6625127 8.7 10.6 8 namely the hope that China will bail New Zealand 684159 177440 506719 22 24.2 20.7 out the debt crisis in Europe. Obviously European countries very much hope that Data source: General Administration of Customs of the P.R.C. China can help. But can China really play a significant role? Figure 2 EU's major importers and import values (Unit: Millions of euro) If carefully look at the Figure 2, we may find that although EU’s import from China has grown rapidly in the decade, but it still lags far behind EU’s import from U.S. and the imports within the EU. China is not EU’s largest import destination. Besides, because China’s rigid demand for EU products is relatively greater and EU frequently takes anti- dumping measures on China’s exports, EU’s trade dependence on China is small. In other words, China doesn’t have a big influence on the EU economic and trade. According to Commerce Depart- Data source: European Union’s statistics office ment statistics, China’s investment to the EU amounted to $4.278 billion in 2011, Therefore, the role played by China increasing by 94.1 percent, but Table 2 Table 2 EU Internal Direct Investment shows China’s investment income in the in the European debt crisis is very lim- Income (Unit: Millions of euro) EU is far below that of United States, ited. The key to solve the debt crisis is Brazil, Singapore, Australia, Canada, the political will and structural reforms PARTERNER 2010 Russia and other European countries, es- in Europe. The G20 will push more pecially the United States, whose invest- pressure to the EU or promote intensify United States 45,096 ment income in the EU is six times that reform in Europe from the root of the other European countries 22,376 of China. problem. As Premier Wen Jiabao said Africa 22,155 What’s more, many Chinese schol- in Davos Forum, “Governments should Brazil 13,039 ars believe that China doesn’t have the fulfill their responsibilities and put their ability to rescue EU out of this huge debt own house in order. The major developed Singapore 11,249 crisis. Statesman and economist Cheng economies should adopt responsible and Australia 10,103 Siwei believes that China cannot stage a effective fiscal and monetary policies, Canada 8,675 “hero to the rescue” of the drama, cannot properly handle debt issues, ensure the be “a hero to save Europe.” China’s GDP safety and stable operation of investment Russia 7,799 accounts for 10% of the world, and China in the market, and maintain confidence China (except Hong Kong) 7,590 cannot easily dump its holdings of U.S. of investors around the world.” Japan 4,290 Treasuries of around $1.14 trillion, be- India 2,932 cause such a step could send U.S. bonds (Authors: from School of Eco- nomics and Business Administra- prices tumbling. Europe must ride out the Data source: European Union’s statistics office storm through its own efforts, instead of tion, Beijing Normal University, Bei- sending “too many false hopes”to China. jing, P.R.C)

73 NORTH AMERICA China and Canada: Ever Stronger Partnerships -An exclusive interview with Peter Harder, President of CCBC egional T r ade & I nves t men

R By Lesley Cui

anadian Prime Minister Ste- : How do you comment on Prime phen Harper paid an official QMinister Stephen Harper’s recent visit to China from February visit to China and the 5th Canada- 7 to 11. During the visit, he China Business Forum? met with Chinese President Hu Jintao, : Prime Minister Harper’s second Premier Wen Jiabao and other top of- A C visit to China was probably the ficials. Together with Chinese vice most significant visit that the Canadian Premier Li Keqiang, Harper attended government has made in the past ten and addressed the 5th Canada-China years, and emphasized Canada’s desire Business Forum on February 9, jointly to diversify trade and to deepen coop- held by Canada China Business Coun- eration with China on many fronts. The cil (CCBC) and China Council for conclusion of negotiations on a Foreign the Promotion of International Trade Investment Promotion and Protec- Peter Harder, President of (CCPIT). tion Agreement between Canada and Canada China Business Council After the event, China’s Foreign China was a tremendous milestone that Trade had an exclusive interview with will bring predictability and protection Peter Harder, President of CCBC, to Canadian and Chinese companies. about the trade and investment part- The Nuclear Cooperation Agreement, nerships between the two nations. which will facilitate exports of Ca- pleased with the support of Prime Min- The Canada China Business nadian uranium to China, also adds ister Harper and Vice Premier Li at the Council (CCBC) is the country’s tremendous benefit to both countries, 5th Canada-China Business Forum. I Canada-China bilateral trade and potentially doubling the uranium pro- cannot overstress the importance that investment facilitator, catalyst and ad- duction in Saskatchewan by 2017, and relationship building at the most senior vocate. Founded in 1978 as a private, allowing Canadian companies such level holds for Canadian businesses. The not-for-profit business association, as Cameco, the ability to move ahead Prime Minister witnessed the signing CCBC provides insight into Sino- with supply agreements signed in 2010, of 24 agreements between Canadian Canadian trade and investment issues worth as much as $3 billion. Agree- and Chinese companies at the Business and develops connections that ensure ments to better facilitate the export of Forum, which speaks to the vitality of its members’ business success. CCBC Industrial Beef Tarrow to China speak business relations and their importance members include some of the largest to the huge potential that this market to Canada. and best-known Canadian and Chinese holds. The market for Beef and Tallow : What’s the status-quo of trade firms, as well as small to medium-sized in China is robust, and is expected to Qand investment partnerships enterprises, entrepreneurs, and not-for- exceed $110 million once full mar- between Canada and China? What profit organizations. ket access is achieved. I was also very fields are they mainly in?

74 NORTH AMERICA

: Since PM Harper’s last visit in nadians greater confidence that their already in China or not, because what is A2009, Canada-China relations investments are appropriately protected going on in China will no doubt affect have advanced in many areas. There has within a legal framework. Similarly, what is happening in your business. been a strong increase in the number of respect for legal rights and remedies to dispute resolution give confidence : How are Chinese businesses do- Chinese students studying in Canada – ing in Canada? a 35 per cent increase since 2009. Tour- that Canadian investors can succeed in Q : ism is also steadily increasing largely China. We can congratulate the Chinese Ainvestments that have been made due to the Approved Destination Status : What opportunities do you see that China gave Canada in 2009. In the QCanadian companies have with in Canada, the success of which speaks first half of last year, Canada received China? And what opportunities do to the significance that China is plac- 200,000 visits from China, which was Chinese companies have with Canada? ing on the Canadian market. Frankly as an increase of almost 25 percent. We : successful as we are, we still lag behind also have strong trade and investment The opportunities that exist for Australia in terms of FDI, as well as stu- partnerships in finance and telecom- ACanadian companies in China dent studying in Canadian institutions munications, as well as transportation, reflect the growth and sophistication – areas that Canada should be a more infrastructure, and of course natural of the Chinese domestic economy. The attractive destination for Chinese speak- resources, amongst others. I should services sector in particular, as well as ing investments in Western economies. also note that there are lots of excit- health, education, and social security Also, Canada as a member of NAFTA ing things happening with Canadian are areas that Canadian companies are is a friendly environment for investment SMEs in China. Canadian companies making great headway in. In addition, to enter North America, and Canada is are reading the 12th FYP and struc- the 12th FYP speaks to the ambition most certainly open for business, wel- turing their activities to meet China’s that China has for a greener economy, coming Chinese investors and compa- needs. Canada has a lot of technology and many Canadian companies are nies to explore opportunities here. and technical expertise to offer China, global leaders in areas that are relevant to these goals. : How do you see the future of and I think we will see a growth in col- Qenergy cooperation between the laboration and exchanges in the future. Chinese companies are active in Canada primarily in the sectors that two nations? Education is a strong focus of both : Canada and China, and will continue speak to China’s domestic growth – Not only have Canadian sectors to be an important vehicle to advance natural resources, telecommunications, Abenefitted from Chinese invest- our relationship. agriculture, commodities, as well as ment but also from Chinese demand for financial institutions are particularly energy and natural resources. My hope : Do you see any change taking robust. Huawei Canada opened its is that the Canadian nuclear industry Qplace in trade and investment co- first north American R&D centre in both in raw materials of uranium but operation between the two nations? Markham, Ontario, and CIC also also in the design of nuclear plants can established its north American base participate in this market in China. : Absolutely. Canada and China in Toronto. This speaks to the great Ashare a rich history of friendship, potential for investments and the com- : What differences would be made by the conclusion of the built on mutual respect and many com- plimentary nature of sectors and oppor- Q substantive negotiations on the bilat- plimentary attributes and goals. Sig- tunities. eral Foreign Investment Promotion nificant changes have taken place over : How are Canadian businesses and Protection Agreement? the last short while as Chinese investors Qdoing in China? Do you have any : The conclusion of the substantive have embraced the opportunities of- suggestion for them? fered by Canadian markets. Growth in Anegotiations on the bilateral FIP- : investment has been especially robust Canadian business continues to PA not only will supply legal certainly for in the resources sector, and we have Aexpand and invest in China. Clear- investors in both countries, but more im- also seen significant investments made ly, to be successful requires patience and portantly in the longer term it has inspired in telecommunications, and financial perseverance and Canadian businesses the leadership of both countries to begin institutions, amongst others. One of have exhibited that through their long the pursuit of free trade negotiations the main drivers for these investments standing participation in the Chinese which would have a very positive impact is the push for domestic consumption marketplace. in our trade and investment relationship. in China, and the need for greater en- Examining resources like the Five The joint study underway with respect to ergy supplies and other resources to fuel Year Plan are essential for Canadian the complementarities of our economies that growth. As a country with both a firms to recognize where the opportu- will report in May, and it’s my hope that strong focus on environmental objec- nities exist so that they can align their both sides will commit to establishing a tives and tremendous energy needs, product or service with China’s needs framework for negotiations and that we Canada has a lot to offer. and strategic direction. are able to meet the ambitious objective of The FIPPA will also enhance All Canadian companies must also concluding free trade negotiations in the mutual investment as it will give Ca- have a China strategy, whether they are year ahead.

75 NORTH AMERICA The Trans-Pacific Partnership: A High Barrier Agreement?

By Edwin Way, Li Xiaoxue egional T r ade & I nves t men R TPP is not only a simple FTA but a “Sample Agreement” that has high hope from USTR (Office of the United States Trade Representative). There are those who are concerned that the TPP is an attempt by the United States to promote American hegemony. What is the true aim of TPP? Why does the United States push forward it? This article will offer some insights.

n the 11th November 2011 the Japanese to join the group. On the last day of the 2010 APEC Prime Minister, Yoshihiko Noda, an- summit, leaders of the nine negotiating countries en- nounced negotiations to join the Trans- dorsed the proposal advanced by United States. Pacific Partnership (TPP). It caused a Unlike most multinational free trade agree- lot of academic arguments and also media attentions ments, TPP is not only a simple FTA but a “Sample especiallyO from Asian countries like China, Korea Agreement” that has high hope from USTR (Of- and India. fice of the United States Trade Representative). It is “Sample Agreement” pushed forward by dominated and pushed by the United of States. The United States There are those who are worried that the high- level requirements of the TPP may be designed to The Trans-Pacific Partnership (TPP), also exclude countries with large state sectors such as known as the Trans-Pacific Strategic Economic China and India. There are those who are concerned Partnership Agreement, is a multilateral free trade that the TPP is an attempt by the United States to agreement that aims to further liberalize the econo- promote American hegemony. mies of the Asia-Pacific region. The original agree- What is the real purpose of the United ment between the countries of Brunei, Chile, New States？ Zealand and Singapore was signed on June 3, 2005. Six additional countries – Australia, Malaysia, Peru, These concerns may be overdrawn. It is unlikely Japan, United States, and Vietnam – are negotiating that anyone in the US business community or in Washington D.C. would be naive enough to expect a country like Vietnam to liquidate its large state owned sector just so that it can export a few more T-shirts to the United States. Vietnam already enjoys a large trade surplus with the United States and Vietnamese companies have established good working relationships with big American retailers such as Wal-Mart. Moreover, the United States has already established free trade agreements with a number of countries that have much larger state-controlled sectors than the United States. Foremost among these is Singapore. In Singapore, companies that are linked to the government’s investment company Temasek Holdings, represent fully 60% of the country’s GDP. The US-Singapore bilateral FTA has been in effect PPT members for more than eight years since January 1, 2004 without leading to any major overhaul or diminishment 76 INVESTMENT of the Singaporean government’s role to pave the way for free trade agree- time has come for a new and bolder ap- in the nation’s economy. If a country as ments with Asia’s other big trade players proach” because pushing for a free trade small as Singapore was not compelled including China, as well as Japan and agreement would “create a better trade to stop subsidizing publicly controlled India. The US business community is climate”. companies, why should anyone believe keen to see free trade institutionalized Currently, domestic political larger countries such as Vietnam or as a permanent US economic policy and and economic considerations make Malaysia would be forced to do so? to prevent any return to the pre-1970 the broaching of a US-China FTA Needless to say, the US government practice of US industrial protection. US a sensitive issue on both sides of the itself subsidizes many industrial and lobby groups and special interest asso- Pacific. There are many in China who agricultural concerns and these busi- ciations are keenly aware that for most are concerned about rising income in- nesses would not allow their interests to of US history the United States had the equality and would hesitate to support be jeopardized. world’s highest industrial tariffs. The runaway economic liberalization and The TPP is being publicized as a period of high tariffs in the 1800’s and complete deregulation. There are even high-quality agreement that focuses on 1900’s also coincided with rapid eco- those who wonder if China made too state-owned companies not because its nomic growth and the emergence of a many concessions in its negotiations supporters actually believe a country broad middle class. Economists debate to join the World Trade Organization. like Vietnam (let alone China) would whether or not high US tariff walls in Similarly, in the United States, many be willing to abandon their existing the 1800’s hindered or helped the US labor unions, environmental groups and developmental model in exchange for a become a wealthy nation. Leaving this voters are concerned about free trade marginal increase in exports. Instead, technical debate aside, this historical ex- agreements and do not feel the US has this argument is being made to allay perience has undeniable appeal to those benefited from the North American American political concerns about free unhappy with deindustrialization, fall- Free Trade Agreement or the bilateral trade agreements. In recent years some ing incomes and high unemployment. FTA’s the US has concluded. They as- American writers, most prominently The path selection and sociate free trade agreements with the former Wall Street banker, Ian Brem- reflection of the United States offshoring of US manufacturing and mer, have hyped the threat posed to for free trade agreement rising unemployment. the United States by “state-capitalism”. Free trade agreements such as the Bremmer frames the US trading rela- If the TPP agreement is conclud- TPP allow leaders on both sides of the tionship with East Asian states in zero- ed and ratified it will provide a power- Pacific to gradually assess the conse- sum terms and tries to generate fears ful argument for free trade enthusiasts quences of establishing free trade agree- about a Cold War ideological battle within US domestic politics who want ments with countries with very dif- between state capitalism and the so- to see the US and China establish a free ferent political and economic systems. called free market system. Emphasis is trade agreement. In signing agreements This allows leaders to experiment and being placed on the high quality of the with Vietnam and Malaysia, the US learn from free trade agreements with TPP by its supporters not because the will have established a free trade agree- countries operating under different TPP will actually feature enforceable ment with medium-sized Asian coun- systems in a relatively low-risk manner. requirements but in order to allay fears tries with low average wages and large China’s Free Trade Agreement with that have been stoked by Bremmer and state sectors. Supporters of a US-China New Zealand can also be interpreted in others. If the TPP’s provisions were FTA will then be in the position to ar- this way. It would be overly pessimistic really as strenuous as some suggest, gue that if the US already has free trade for Americans to view the China-New one wonders why the leaders of Singa- agreements with a “little dragon” like Zealand FTA as an attempt by Beijing pore, Malaysia and Vietnam would be Vietnam, it would be reasonable to go to lure away a traditional US friend in willing to participate in these negotia- ahead and conclude an agreement with the region. Instead, the China-New tions. It seems unlikely the leaders of the “big dragon”. Since June 2008, the Zealand FTA gives free trade support- Singapore, Malaysia and Vietnam are United States and China have already ers in the US a valuable opportunity to secretly planning to radically dismantle been moving in this direction, nego- learn about the potential consequences their entire economic and political sys- tiating a Bilateral Investment Treaty of a US-China FTA. In this manner, tems. What is more likely is that the that is strongly backed by US business the TPP and the China-New Zealand requirements of the TPP will in prac- interests including the US Chamber of FTA may be interpreted as a part of a tice be flexible enough to accommodate Commerce. Maurice Greenberg, the collective attempt to “cross the river by the economic systems of countries like former head of disgraced insurance gi- feeling the stones”. Singapore, which have a single ruling ant, AIG (which was at the heart of the party and an economy dominated by 2008 financial collapse) recently wrote (Authors: Edwin Way, doctoral state-invested companies. a much-talked-about op-ed in the student in political science at Indi- From the US perspective one Wall Street Journal championing the ana University; Li Xiaoxue, doctoral can’t rule out the possibility that the idea of a US-China FTA. Greenberg student in China Institute for WTO goal of the TPP is to begin to build the acknowledged that “the negotiations Studies, UIBE (University of Interna- domestic political coalition necessary will not be easy” but claimed that “the tional Business and Economics)

77 NORTH AMERICA China and Canada: Ever Stronger Partnerships -An exclusive interview with Peter Harder, President of CCBC egional T r ade & I nves t men

R By Lesley Cui

74 NORTH AMERICA

75 NORTH AMERICA The Trans-Pacific Partnership: A High Barrier Agreement?

77 LATIN AMERICA

Chinese Investment in Latin American Resources By Barbara Kotschwar, Theodore H. Moran, and Julia Muir

egional T r ade & I nves t men hina’s need for vast amounts natural gas from Argentina. Official data Latin America has grown in im-

R of minerals to sustain its high shows that Venezuela now sends about portance to China over the past decade: economic growth rate has 460,000 barrels a day (about 20 percent Over half of Chinese investment in increasingly turned Chinese of its oil exports) to China. In Ecuador, natural resources is in Latin American investors towards Latin America. This the Chinese oil company PetroChina has countries, concentrated in some thirty- demandC has propelled China into third lent $1 billion to state company PetroEc- four major projects that stretch from place among Latin American investors, uador in exchange for oil deliveries. The Venezuela and Ecuador, through Bra- directing over $15 billion (about 9 per- China Development Bank also agreed zil, Bolivia, and Peru, to Argentina and cent of total FDI) to the region in 2010. to lend $1 billion to Ecuador’s govern- Chile. Since initiating its “going out” Over 90 percent of this investment has ment, to be repaid through oil exports. strategy, encouraging its companies to been targeted towards extractive in- In the case of Venezuela and countries become more competitive, China’s total dustries. China’s voracious appetite for like Argentina and Ecuador, who have FDI in Latin America has increased minerals investment is often seen as a both previously defaulted on interna- nearly six-fold: from $285 million in boon to Latin American countries—a tional debt, access to such amounts of 2004 to $1.6 billion in 2009. chance to diversify away from reliance capital would otherwise be very difficult. What are the implications of Chi- on traditional markets and a steady According to a study of CDB’s activities nese investments in Latin American and ready source of funds, and, as the “virtually no other financial institutions resources for world markets, and for ECLAC study points out, an opportu- were willing to lend such large amounts individual Latin American host coun- nity for Latin American countries that of capital for such long terms”. tries? Are these investments part of a need capital and technology. Chinese strategy to capture the world’s But this possible benefit will be far resource base for China? Are there clear out-shadowed by bad news if it turns out differences between Chinese owned that the economic, social, and environ- and managed resource projects, and mental framework within which Chinese similar projects owned and managed by companies operate is different from, and OECD-headquartered investors, with inferior to, the best-practice standards regard to labor practices, environmental that the major established oil and mining practices, questionable payments, and companies typically maintain. Individual corporate social responsibility? How host countries in the developing world can host policies in Latin America be may be exposed to resource curse prac- structured to achieve most benefit from tices of illicit payments, graft, and corrup- Chinese resource investments? tion, plus poor worker treatment and lax China has also been active in in- Implications for world markets environmental standards. frastructure development projects in In recent years, China has used fi- Latin America. The CDB has offered On the demand side, Chinese nancing arrangements and direct invest- a $2.6 billion 10-year loan to revive a appetite for vast amounts of energy ment to gain secure access to oil, metals, freight train system connecting Buenos and minerals puts significant strain on and foodstuffs from governments around Aires to much of Argentina’s central international markets for oil, natural Latin America. In many cases loans are heartland. In the country’s Rio Negro gas, iron ore, coal, copper, nickel, alu- secured against revenues from future province, the Metallurgical Corpora- minum, and other materials. sales to Chinese companies or granted at tion of China has invested $80 million On the supply side, Chinese com- rates subsidized by the state-controlled to reactivate an iron ore mine, and Chi- panies, backed by the Chinese govern- China Development Bank (CDB). Most na’s Beidahuang Group has promised ment, have been acquiring equity stakes prominent are deals to obtain oil from $1.4 billion in irrigation infrastructure in natural resource companies, extending Brazil and Venezuela (China has prom- in exchange for a 20-year contract to loans to mining and petroleum inves- ised to provide more than $32 billion to grow corn, wheat, soy, and dairy on tors, and writing long-term procurement the Chavez government, which will pay otherwise dry land for Chinese con- contracts for oil and minerals in Africa, off its debt in oil), and soy, wheat, and sumers. Latin America, Australia, Canada, and

78 LATIN AMERICA other resource-rich regions. These activi- to a given structure of production (first withstand scrutiny as they register their ties have aroused concern that Chinese and third structures), tying up, or gain- equity, raise capital, and seek multilat- efforts to procure raw materials might ing preferential access to, supplies have eral assistance in international markets be exacerbating the problems of strong zero-sum implications for other consum- tend to adopt defensible standards, or demand, locking up natural resource ers. What is noteworthy, however, is that face reputation risk. Supporting groups supplies, gaining preferential access to if the procurement arrangement expands that monitor the activity of corporations available output, extending control over and diversifies sources of output more helps to shed light on both positive and the world’s extractive industries. rapidly than growth in world demand negative practices and helps encourage But Chinese investments in Africa, (second and fourth structures), the zero- constructive behavior. Latin America, and elsewhere need not sum implication vanishes as all consum- The host country regulatory en- have this zero-sum effect. Chinese ef- ers (including Chinese purchasers) have vironment makes a big difference. The forts to procure raw materials might easier access to a larger and more com- business environment (along with toler- actually help solve the problems of strong petitive global resource base. ance of civil society participation) was demand. Which outcome Chinese pro- This strategy on the part of very different before and after the Fuji- curement arrangements generate depends government-backed Chinese investors mori regime in Peru, and the behavior of upon whether those arrangements basi- and lending agencies will not come as companies reflects this. Chinese investor cally solidify a concentrated global sup- a surprise to those who have examined behavior in some African countries re- plier system (and enhance Chinese own- the evolution of the Japanese approach flects the inability or unwillingness of ership/control within that concentrated to natural resource procurement. In the leaders to set or to enforce corporate be- supplier system), or expand, diversify, and early resource struggles of the 1970s, the havior standards. Over the course of our make more competitive the global sup- Japanese government entertained the research, weak institutional capacity and plier system (and use Chinese ownership/ idea of creating the country’s own major political will were cited repeatedly as fac- control as a lever for such expansion, di- “national champion” resource companies, tors limiting the potential for a positive versification, and enhanced competition). or engaging in strategies. development impact. The obligation to What does evidence from Chinese From the late 1970s through the direct substantial tax revenues to provin- resource procurement activities around 1980s, Japanese procurement became a cial and local governments led OECD the world show, and how do Latin major force in enhancing the competi- companies to set up programs to help au- American projects fit in? The Chinese tive structure of global extractive indus- thorities spend the funds effectively, and deployment of capital to procure natu- tries and diversifying the geography of to seek out partnerships and dialogue ral resources takes four forms. production. Japanese participation in with civil society actors who could help. In the first procurement arrange- Latin American mining projects today Foreign investment is a catalyst ment, Chinese investors take an equity consists primarily of minority equity for change. Using foreign investment stake in a very large already-established stakes in a large array of extractive proj- in the extractive sector for broad-based producer so as to secure an equity-share ects, backed by purchase contracts for a national development has some of the of production on terms comparable to portion of the output. attributes of a public good: Interna- other co-owners. Lessons and policy implications tional standards, support for capacity- In the second procurement ar- building and enforcement of interna- rangement, Chinese investors take Our research has found that Chi- tional standards, and institutions to an equity stake in an up-and coming nese investment in Latin America pre- provide credible monitoring are needed producer so as to secure an equity-share dominantly expands and makes more to shape the pure play of market forces. of production on terms comparable to competitive the global resource base. Antamina in Peru is an example of this, other co-owners. Chinese investors tend to be more willing often mentioned by other companies In the third procurement ar- to take on new frontier projects that oth- and by Peruvian officials as setting the rangement, Chinese buyers and/or the ers pass up. standards for others to follow. In the Chinese government make a loan to a This good news could turn to bad words of David Splett, Antamina’s vice very large already-established producer news, however, if Chinese companies, president for finance, “companies can in return for a purchase agreement to traditionally guided by a principle of fulfill a significant role in a country service the loan. nonintervention, are not held to high when institutional and social weak- In the fourth procurement ar- standards of corporate behavior. Inter- nesses exist. Antamina is an excellent rangement, Chinese buyers and/or the national standards have become more example of what companies can do in Chinese government make a loan to stringent over the past decade in terms helping communities address social finance an up-and-coming producer in of labor and environmental practices, and infrastructure needs. But to do this return for a purchase agreement to ser- transparency and control of corruption, there needs to be significant leadership vice the loan. and community outreach and support. provided at the executive level to set the These four structures provide the Here are several lessons that can be standards.” basis for giving operational definition to drawn from experience: “tying up” supplies. If the procurement Financial markets bring ac- (Authors: from Peterson Insti- arrangement simply solidifies legal claim countability. Investors that have to tute for International Economics)

79 The universeMedical Science

The Innovation Theory —Quotes form Zhang Daohua’s book

take the courage to probe into the universe, people in history, this new scientific perspective on the earth and human world as well as their development is regarded as the newest outcome of changes, to form this theory, in the purpose developing Marxism in China and the theoretical I of moving theories of cosmology, philosophy, basis for the socialism with Chinese characteristics. medical science and the secular world down from Besides, it is also the overarching guideline for the the alter and bringing them close to common people. great cause of revitalizing the Chinese people. This These theories should be brought to a grass-root level concept, originating from Marxism-Leninism and so as to be easily read, comprehended, used and even- Mao Zedong Thought, properly reflects the charac- tually be accepted by the common people. Only in teristics of modern China’s economic and scientific this way can these theories become a strong cultural development and practices in this new era and new and material power that can have a great social influ- situations. It keeps pace with the times and blazes ence on the world civilizations. In this regard, the new trails for the advancement of these long-held innovation theory is a firm and solid support for the theories. With this in nature, the Scientific Outlook scientific outlook on development. on Development is of essential significance for the In the field of cosmological study, the tripartite prosperity of this country, the unity and well-being cosmos theory has been publicly put forward and of its people and the sustainable development in the some major accomplishments have been made in future. relevant researches. It is believed that the Zero mate- Nowadays, against the backdrop of globaliza- rial world (with dark matter and dark energy) acts as tion and modernization, China and the whole world a stabilizer which maintains a balance between the are experiencing an unprecedentedly high-speed positive material world (with positive matter) and the development of information and high technology. negative material world (with negative matter), so Common people, living this new time, are also in as to keep the effect of blue shift and red shift to an vigorous pursuit of freedom, specialty and adventure. appropriate extent. The Lagrange points mark posi- They are becoming more independent, selective, tions where a small object affected only by gravity varied in personality and crazy about unconvention- can theoretically be stationary relative to two larger ality. However, in such a transitional period when objects and with the functioning of the Leyden frost everything is going through an earthshaking change, layer, those positive, negative and zero matter in the people are confronted with some serious problems, universe can reach a balance, coexist in a stable man- such as lack of beliefs and credibility, confusion in ner, and affect each other in the form of black hole, ideology and occurring complaints and conflicts. wormhole and while hole. This new and innovative What should we do to handle these problems and idea of tripartite cosmology highlights the connec- get over our confusion while embracing innovations? tion between the zero material world and the other Top of all, we should be guided by correct ideas. We two material worlds in three methods and proves the should firmly hold high the great banner of develop- traditional concept of monism in cosmology to be in- ing Marxism with Chinese characteristics and unify correct. It also concludes that the tripartite theory of all the Chinese people to make every endeavor for the methodology, as the principle methodology of the in- stability and prosperity of our country. novation theory, will be an effective solution to those Only when Chinese people are guided by the philosophical, medical and human-related problems scientific concept of development, can this country be that have daunted human beings for centuries. a real strong power in this world and can its people As the greatest cultural product of Chinese enjoy a stronger sense of national pride. Medical Science Theory Philosophy

The scientific outlook on development is a practical demonstration of the dialectics, which is based on all-faceted, coordinated and perpetual laws, and perfect representation of universal truth and fundamental principles.

ased on the tripartite theory of methodology, the author aims to comprehensively explain and prove the fact that the scientific outlook on development is the only univer- Bsally applicable and sustainable screening device for all truths. This concept can stand up to the test of theories and standards. On the contrary, ideas of those crammers, superstitious and imperious people turn out to be one-sided, discordant and unsustainable, which fail to meet the standards of universal truth. China has made remarkable achievement in the opening up and reform in the past thirty years and in the building of a harmonious society as well as dealing with world affairs. This fact also proves that the scientific outlook on development, originated and developed from the philosophical ontology, is one of the most extensive, in-depth and applicable truths that permeates the whole development process of human ideas. It is a combination of world views and methodologies, linear thinking and all-dimensional thinking, as well as the combination of epistemology and logic study. The scientific outlook on development is a practical demonstration of the dialectics, which is based on all-faceted, coordinated and perpetual laws, and perfect representation of universal truth and fundamental principles. In brief, those out-of-date, superstitious and slavish ideas and conventions that have dominated in past centuries at home and abroad, as well as those enclosed and tyrannical mindsets, are no longer applicable for people in modern China and the world as a whole. It is always futile to blindly deny the past with modern achievement or to deny the current development simply because of some occurring problems. We should only make use of the comprehensive dialectical ideas and truth of the scientific outlook on Development on

—Quotes form Zhang Daohua’s book —Quotes form Daohua’s Zhang on development to reflect on the past, contemplate on the present and get ourselves out of troubles. The irreversible trend of the world becoming a global village has cracked down the century-old wall

The Scientific Outlook Outlook Scientific The against modernization in the past and is now breaking through the shackles of thousand-year-long influence of religious sects. Under such circumstances, we must use the scientific outlook on development to guide and plan our behaviors and efforts, as a gesture to hold high the great banner of socialism with Chinese characteristics. The universeMedical Science PhilosoTheophy ry ------(E-book and , etc. “Quantitative “Quantitative Pre , reports in the 57th Innovation Innovation and Ex “Short-term Forecast the the Scientific Outlook on . Proofread works: Zhang’s Zhang’s writings: Translated works: and 63th edition of the World Meteorologi cal News and reports the on founding U.S. of Commission.Weather diction of Rainfall based on and Dynamic Simulated Selection Method”, “Monthly Flow Prediction on the Average 500 hPa height of the Northern Hemisphere within 5 days”, “Simulated Weather Model on REEP” tion of Economic Development, Top 10 Outstanding Trade Leaders”“China by the Development Research Center of the State Council, “Founder of Chinese InnovationTheory” by China Council for the Promo tion of Innovation, “Outstanding Innovation Theorist” by China Academy of Manage ment Science and Hong Kong International Network Television, “brilliant businessman who establishes new management concept” by the Future Society Science of and theTechnology of PRC andMinistry China of Academy of Management Science, as well as “International Golden Prize for Best Entre preneurs” by the Editorial Office and Trade Leader Club of Geneva. Zhang is alsovice the director of World Eminence BusinessChinese Association, a guest professor the of World Eminence Chinese Business College and honorary president for life of the Center for Talent Development and Exchange CPS. of ploration, the Innovation Theory Overseas Edition), Development ing of Global Climate Based on Multidimensional Similarity Method” of Marxism with Chinese Hischaracteristics. achievement and experiencesedited areinto alsothe Dangjian, or “Partying” magazineBuild of the Publicity Department of the CPC central Chinesecommittee Public Administration and the of magazinethe State Council. Other to titlesZhang grantedinclude: China Top 10 BusinessPioneer by China Council for the Promo ------Now the president of Guangzhou Dao Hua ScientificTechnology In From From the year to 1955 1966, Zhang worked as a technician in Chinese Zhang Daohua was born in Jiexi County of Jieyang City in Guangdong work with insightful ideas, brilliant expositions and practical demonstration study, with theories and is a monumental contribution lization to thatculture will and surelycivi exert a profound whole and world. far-reachingTheFortune World Magazine,influence commentson this the book as a great appointed as a guest senior researcher in the Policy and Economic Research Center of the State Council. His regardedmasterpiece, as thethe firstInnovation greatTheory, book modern is that academiceffectively achievements integratesin philosophy,traditional cosmology and and innovation Protection Commission under the National People’s Congress the (NPC) Population,and Resource and People’s EnvironmentPolitical Consultative CommitteeConference (CPPCC). Besides,of thehe wasChinese also Educational Apparatus” and is the 8amodelsgeneral websiteplanner (www.8amodels.com).and translatorHe was for also“DEMO the CHINAawarded 2007 the · titleOutstanding of Individual in Environmenttion and Innovation of Protecthe Private Sector” by the Environment and Resource gas. This equipment was well-received by farmers in the local commune. dustry & CorpTrade Ltd., Zhang has translated the book of “10A Scientific of of the NMC in In 1958. 1960, he was transferred, together with some cadres from the state organs, to work at the SunjiatunLiaoning ProvinceVillage for a year. During of Jinxithat period, he Countyinvented and presentedin a multifunctional lighting, cooking and heating equipment fueled by marsh Academy of Meteorological Sciences and the National Meteorological Cen whereter, he was awarded as the advanced individual in socialist construction Province December on received He 22, a bachelor’s degree, 1937. now known as a distinguished engineer, a guest professor, a senior researcher, an extraor dinary innovation theorist and vice director of the Chinese Public Adminis tration magazine affiliated to the State Council. Zhang Daohua Zhang

InfoRMATION tion and Exhibition Center Exhibition and tion Venue: Date: Exhibition Industry Power 2012MagneticInternationalChina Hu Guoliang person: Contact [email protected] Email: Fax: Tel: Shanxi Add: Web: etc. equipment, and tools ing mentand accessories, coal loading, load equip and technology construction ture Exhibits: (Taiyuan) Venue: Date: Technology Exhibition &Equipment Coal Taiyuan 11th The Yuan Zhibin person: Contact Fax: Tel: 050091 huang, Add: Add: Web: etc. equipment, heating water cial commer products, cooling and heating pump heat source ground products, ing Exhibits: Frequency: Center hibition Venue: Date: 7th Exhibition The Solar Hebei Power Electric Welding, Metallurgy, Industry, Mining resources, and Energy

84 China Fairs & Expos 86-351-4183723 86-351-4183723 86-311-83835001 86-311-83835767

www.hbnuantong.com No,205 North Road, Tianyuan, Tianyuan, Road, North No,205 www.tymtz.com April 24-April 25, 2012 24-April April 2012 24, 22-April April Shijiaz Road, North No.368, April 2012 April Shanghai Everbright ConvenEverbrightShanghai ShijiazhuangInternational Ex China Coal Exchange Center Center Exchange Coal China New heating system, heat Geological survey, infrastruc survey, Geological Yearly ------Email: Fax: Tel: 100048 Beijing, District, Haidian Add: etc. furnaces, making steel smelting, iron Exhibits: Hall) (New Center Venue: Date: Expo Industry Metallurgical International China 2012 Lin Zou Person: Contact Email: Fax: Tel: Dis 100125 China, Beijing, trict, Chaoyang Yun, Xiao Li Guang Address: ment Exhibits: Frequency: power, stell stainless power, metal rous Exhibits: Frequency: Decorations planning, City Construction, Email: [email protected] Email: Fax: Tel: Web: etc. ties, facili kitchen and bathroom pipe, coatings plastic materials, waterproofing and architectural materials, wall new accessories, hardware and Exhibits: Center Venue: Date: and Exhibition Materials Building New Efficiency Energy Building tional Interna (Tianjin) China 5th The 2012 86-10-88515541 86-10-88514541 86-10-84414360 86-22-24218221 86-10-84414356 86-22-24218213 www.tjbma.com Jia No,32, Zhichun Garden, May 11-May May 14, 2012 April 26-April 28, 2012 28, 26-April April [email protected] [email protected] China International Exhibition Exhibition International China Tianjin International Exhibition Exhibition International Tianjin etc. Tel: Tel: Email: [email protected] Email: Clean machinery and equip Contact: Wang TaoContact: Iron-based powder, non-fer 903, Block A, No.15 Xia Metallurgy, raw materials, materials, raw Metallurgy, CICIE 2012 CICIE Window and door profile profile door and Window Date: Date: tion Center tion Venue: Yearly Yearly 86-21-61294581 May 6-May 8, 2012 8, 6-May May National Conven National ------Email: [email protected] Email: Fax: Tel: ity, etc. public and media cars, sports cars, cept Exhibits: Center tion Contact person: Peng Cheng person: Contact [email protected] Email: Fax: Tel: Web: etc. equipment, measuring gauge, clip Exhibits: Frequency: Center Exhibition and vention Venue: Date: Exhibition Tool 2012Chongqing Industry Fax: Tel: 100048 jing, Add: Web: etc. washing, mak furnaces ing, steel smelting, making, iron ing, cok washing, coal processing, mineral Exhibits: Hall) (New Center Venue: Date: Exhibition Furnace Industrial International and Forging Foundry, China 11th The 2012 tools Machine Machinery, power boats and sailing, luxury and ultra ultra and luxury sailing, and boats power Exhibits: Venue: Date: Exhibition &Equipment nology Tech Boat International 17th China The age Stor Logistics, Transportation, Venue: Date: Exhibition Industry Automotive International Qingdao 11th The 2012 Fittings and tools Auto 86-532-85896533 86-23-86846800 86-10-88514541 86-532-85890835 86-23-86846822 86-10-88514541

Zizhuyuan, Haidian District, Bei District, Haidian Zizhuyuan, May 9-May 12, 2012 9-May May 12, www.mouldnet.com.cn www.foundry.com.cn May 9-May 12, 2012 9-MayMay 12, April 19-April 22, 2012 19-April 22, April 2012 30, 26-April April China International Exhibition Exhibition International China Shanghai World Pavilion Expo Shanghai Chongqing International Con International Chongqing Qingdao International Exhibi International Qingdao Cars sport utlity vehicles, con vehicles, utlity sport Cars Mold zones, industrial knife knife industrial zones, Mold Metallurgy, raw materials, materials, raw Metallurgy, Boats and luxury yachts, yachts, luxury and Boats Yearly ------FAIR & EXPOS luxury yachts, boats, inflatable boats, Public Security Products Exposition Fax: 86-579-85415244 tour boats, dock equipment, boat design, Date: May 9-May 11, 2012 Email: [email protected] etc. Venue: Shanghai World Expo Pavilion Web: www.boatshowchina.com Exhibits: Video security monitoring sys- Tel: 86-21-64371178 tem, etc. Toys, Gifts and Craftwork Fax: 86-21-64370982 Web: www.sh-anfang.org Email: [email protected] Add: Room 910, No.30, Jianguo Road, The 14th Beijing International Toys Contact: Miss Gao Huangpu District, Shanghai &Preschool Tools Exhibition Tel: 86-21-22025717 Date: May 15-May 17, 2012 Auto China 2012 Email: [email protected] Venue: China World Trade Center Date: April 25-May 2, 2012 Contact person: Li Shunmin Exhibits: Plastic toys, electric toys, Venue: China International Exhibition wooden toys, f lying toys, metal toys, Center The 8th China International Defense plush toys, inflatable toys, nursery facili- Frequency: Yearly Electronics Exhibition 2012 ties, early childhood products, etc. Exhibits: Domestic and foreign pas- Date: May 12-May 14, 2012 Web: www.beijingite.com senger cars, commercial vehicles, do- Venue: Beijing Exhibition Center Add: Room 902, Building 5, New Town mestic and foreign auto parts and re- Exhibits: Computer information system after Baiziwan Road, Chaoyang Dis- lated products, international automo- security, fire control systems, radar sys- trict, Beijing, 100022 tive industry new and high technology tems, electronic warfare systems, equip- Tel: 400-6897686 products, etc. ment and technology, etc. Fax: 86-10-87766773 Address: No.46, Sanlihe Road, Xicheng Add: Building E, No.23 Fuxing Road, Email: [email protected] District, Beijing, 100823 Beijing, 100036 Contact: Mr. Guo Tel: 86-10-68595106 Tel: 86-10-68296457 Fax: 86-10-68595076 Fax: 86-10-68296451 Email: [email protected] Food and Additives, Beverage, 2012 China Intelligent Transportation Contact: Zhao Jun System and Traffic Safety Exhibition Drinks, Seasonings, Dairy Prod- ucts Date: May, 2012 2012 China International Soybean Food Venue: Kunming International Conven- Beauty and Cosmetics tion and Exhibition Center Processing Technology and Equipment Exhibits: Intelligent traffic management China International Cosmetic Detergent Exhibition system, road monitoring and traffic vio- Expo 2012 Date: May 6-May 8, 2012 lation processing system, etc. Date: May 4-May 6, 2012 Venue: Shanghai Everbright Conven- Web: www.31huiyi.com Venue: Shanghai New International tion and Exhibition Center Tel: 86-871-8369576 Expo Center Frequency: Yearly Fax: 86-871-3561974 Frequency: Yearly Exhibits: Food and soybean processing Email: [email protected] Exhibits: Beauty, skin care, washing, technology, etc. makeup, perfume, personal care prod- Email: [email protected] ucts, hair care, packaging machinery, Contact person: Wang Zenghui Glass, Ceramics, Plastic, Rubber related materials, equipment and books and magazine, etc. 2012 The 2nd China (Beijing) Interna- 2012 The 7th China Linyi Plastic Ma- Web: www. Cbebaiwen.com tional Exhibition of Green Aquatic Food chinery & Plastic Packaging Exhibition Email: [email protected] Industry Date: April 28-April 30, 2012 Tel: 86-21-53082132 Date: May 8-May 10, 2012 Venue: Linyi Lu XinGuo International Fax: 86-21-53082151 Venue: National Agricultural Exhibition Convention and Exhibition Center Contact: Zhang Wenyan Center Exhibits: Injection molding equipment, Exhibits: Abalone, sea cucumber prod- plastic packaging machine, etc. ucts, seafood, frozen, blue crab fresh Web: www.jnhengzhan.cn Textile and Clothing products, dried fish floss, tuna, lobster Tel: 86-331-85880252 and other seafood. Fax: 86-531-88153208 The 7th Yiwu Consumer Goods Trade Add: 1110, Block A, Gaobeidian Sheng Email: [email protected] Fair Shilong Source, A 226, Chaoyang Dis- Date: April 21-April 23, 2012 trict, Beijing, 100124 Venue: Yiwu International Expo Center Tel: 86-10-57477397 Public Security and Fire Control Exhibits: Consumer category, etc. Fax: 86-10-57612611 Web: www.yiwu.sourcingfair.com Email: [email protected] 2012 The 12th Shanghai International Tel: 86-579-85415266 Contact: Zhang Xuexiang

MOVIE Lifestyle April: Visions of Asia in the French Cinema

French films with Chinese (and sometimes English) subtitles Price: 20rmb (Students: 10rmb) Fidelity card: 100 rmb/5 films + 1 free (Students: 50 rmb) Cinema, Institut Français de Chine More information on activities : www.institutfrancais-chine.com

India Song Fear and Trembling

France, 1974 France, 2002 120’, Drama 107’, Drama Directed by: Marguerite Directed by: Alain Corneau Duras Cast: Sylvie Testud, Kaori Tsuji Cast: Delphine Seyrig, Mi- chael Lonsdale Amelie’s dream comes true when she moves to Japan to begin work as a translator. Keen to impress her bosses and ‘‘India Song,’’ a blues co-workers, Amelie diligently works tirelessly. However, tune is heard being played on unfamiliar with the customs of the Japanese workplace, she a piano. Two disembodied commits a series of cultural missteps and is singled out as a female voices, voice 1 and deviant within the company hierarchy, suffering a string of voice 2, are heard talking to demotions. each other. The two voices indicate that Michael Rich- Augustin, King of Kung Fu ardson had been engaged to a local woman in the town of S. Thala but that he met Anne- France, 1999 Marie Stretter at a dance one night and fell in love with her. 89’, Comedy After meeting Anne-Marie, he abandoned his fianceé and Directed by: Anne Fontaine followed Anne-Marie to Calcutta. Cast: Jean-Chretien Sibertin-Blanc, Maggie Cheung, Bernard Campan

Tanguy Augustin is the next Kung-Fu king. Or so he thinks. His chances of succeding appear slim, it's true, when you look at France, 2001 him... Since Kung-Fu won’t come to Augustin, it's Augustin 108’, Comedy who’ll go to Kung-Fu. But China, the cradle of martial arts, Directed by: Etienne is far away. Especially by bike... May as well start with near- Chatiliez Orient, Chinatown-style, that is, in Paris’ eastern district. Cast: Eric Berger, André He’ll force himself to eat, speak and think Chinese there. Dussollier, Sabine Azéma And he’ll discover new friendships and the prickle of feelings stirred into life by the needles of an exiled acupuncurist. At In this black comedy, last he’ll live his life without relinquishing his dream. Edith and Paul are the par- ents of a 28-year-old PhD candidate called Tanguy. Grand Bazar à Canton A master of Chinese and France, 2003 Japanese language, culture, 52’, Documentary and history, Tanguy teaches Directed by : Bernard Schmit classes at the university, re- ceives highly respected research grants, and has an excellent Gino is a showman since 15 years and sells clothes on way of communicating with people. He is graceful, reserved, the France SE markets, as did his father and grandfathers. expressive, and altogether a delightful young man. The only But Gino’s bored, and he decides to chance it in Canton dur- problem is that he still lives at home, and treats it like a hotel, ing the big internationnal fair, wishing to find there the good with no plans to move out. Edith and Paul are well-to-do pro- products and the good prices. fessionals who treat their son with respect and kindness, but He leaves with a companion and 7 000 euros. their patience is wearing thin. Unable to confront him about The fair ‘s enormous: teddy bears, luminous ice-cubes, the idea that they wish he’d move on, they concoct a hilarious cellphone accessories, everything ‘s for sale in Canton, fortu- plan to sour his experience of living at home. nately for Gino, genuine adventurer of the profit margin.

ART & GALLERY

RE-REENACTMENT – Chen Nong, Wang Tong Photography Exhibition Duration: 10:00 - 18:00 / 24. 03. 2012 – 11. 05. 2012 Address: OFOTO Gallery, 2F, Building 13, 50 Moganshan Rd., Shanghai. Tel: 86 21 - 6298 5416 Photographers Chen Nong and Wang Tong www.ofoto-gallery.com belong to those who are trying hard to explain history. In recent works, they describe respect and reflection of history in a more introspective narra- tive way. Their bodies and affective experiences become the base of constructing new images. The conflict between historical images and real scenes is used and exaggerated, presenting the meaning of “RE-REENACTMENT”.

“Zhuiku Tablet” Annotation—CHEN Xiaoyun Solo Exhibition

Artist: CHEN Xiaoyun Duration: Mar.25-May.2 2012, 11:00-18:00 March 24th Address: ShanghART Beijing, 261 Cao Chang Di, Old Airport 2012, ShanghART Road, Chaoyang District, Beijing, China Beijing is honoured to present “Zhuiku Tablet”Annotation, develop profound configurational interpretation. Uniquely solo exhibition characterised by semantic ambience of notes and essays, the of artist CHEN exhibition is deluged with anxiety and darkness, where correla- Xiaoyun. As the tion between paintings and photographs is unified in the filed first solo exhibition of lingual fantasy. Since 1999, CHEN Xiaoyun has been con- staged in Shang- centrating himself mainly in photography while this exhibition, hART Beijing in with the set of photos, speaks another attempt by the artist over 2012, it is going long-term practice in this very realm. to be the debut of “Zhuiku Tablet” Annotation, furnishing pictorial an- a dozen artworks notation of Zhuiku Tablet, a book from which both rhetorical including photo- and emotional elements are introduced and unfolded as prem- graphs and paint- ise of painting or photography creation, renders imaginatively ings, which around a withering and waning world infused with verbal conscious- a fictitious theme ness, uttering a passive voice to a few elementary illusions.

87 THIS IS CHINA

Guyuan Prairie: the Nearest Natural Wet Grassland

from Beijing By Lesley Cui

bout 300 km Northwest of Beijing, the North China Plain and the Inner Mongolia Guyuan County of Hebei Province Grasslands give Guyuan Prairie its unique natu- has 900 square km of prairie, the near- ral landscapes. The wonderful scenery, famous for est natural wet grassland from the cap- its luxuriant flowers and grass, vast lake, rugged ital of China. Connecting the Inner Mongolia and zigzag Tanshan Mountains and a boundless APrairie on the north, the Guyuan Prairie has an stretch of natural grassland, has made it a popu- elevation of about 1800 meters. The special cli- lar destination for tourists and photographers. mate and geographical position at the junction of Besides natural scenery, there exists the site of

88 the Dressing Mansion in good condition and a number of other historical sites of the Liao, Jin and Yuan Dynas- ties. Horse riding, camping, or staying in farmers’ Mongolian yurts, having roast whole sheep, and having bonfire parties are the main attractions for visitors. Vast lakes, and sunrises and sun- sets over the grasslands provide great views for city dwellers who’ve grown tired of the urban sprawl. In Guyuan Prairie, one can enjoy the fresh air and the splendid view of flowers, grass and trees to his heart’s content. It is great fun to visit places of historic interest, taste local specialties, and live an idyllic life and experience folk customs. The period from June through September is the best time to visit, and in this period the average temperature rages from 17 degrees to 19 degrees, about 10 degrees lower than that in downtown Beijing. It is one of the ideal sites to escape the city’s summer heat. Horse riding, camping, or staying in farmers’ Mongolian yurts, having roast whole sheep, and having bonfire parties are the main attractions for visitors.

The most beautiful wetland prairie in China Guyuan County is rich in water resources with 15 rivers and 12 natural lakes. Over twenty kinds of fish and waterfowls live in and around the lakes. Every April and May, tens of thousands of small swans are seen here for about one month, a unique scenery attracting a great number of visitors. The wet prairie is a poetic picture of vast grassland, winding river, clean lakes, beautiful 89 THIS IS CHINA

flowers, waterfowls, sheep and horses. It is now a free travel destination. The river you see in the picture is called Lightening River. It got its name because it has numerous twists and turns and is as bright as the lightening. A bird’s view from the mountain top in the north of the prairie provides the best view. The Lightening Lake It is a “lightning” surprise to have such as a vast and clear lake in the grassland. The glittering lake under the Sun is like a huge shining pearl. Different than the usual S-shaped of a river, the Lightning Lake lies in a charming shape resembling the lightning. Beside the lake are green grassland and wandering cattle and sheep. Every Chinese visiting here cannot help singing the famous ancient poem, “The boundless grassland lies beneath the boundless skies. When the winds blow and grass bend low, my sheep and cattle will emerge before eyes.”

90 Horse riding white, purple, and pink bloom on the hun- dreds of acres stretch of meadow, composing Horses in Guyuan are often tamer a stunningly beautiful picture. At the end compared with those in other prairies. And of July and early August, the Golden Lotus the horse owner will be around when you flowers are in full bloom. The golden flowers ride it. This makes horse-rising a lot easier under the blue sky and white cloud make a for novices. Riding a horse in vast natural unique scenery together with the surround- grassland is such a good getaway from the ing mountains, valleys, fields and villages. bustle and hustle of city life. The meadow is a typical primitive wetland Bonfire party prairie with a Hulu River running through it. After enjoying the scenery and rid- The Dressing Mansion ing horses in the daytime, it’s exciting to have a bonfire party at night. People from In the vast prairie near the Lightning different places join each other roasting Lake lies an ancient building of a peculiar whole sheep, dancing, singing, letting off shape. It looks like a tall yurt when you see fireworks, watching wrestling, etc. it from distance, but like a European medi- Camping eval castle when you see it close-up. For centuries, the local people having been calling Beside the Lightning Lake is a perfect it “Dressing Mansion” of Empress Xiao of place to camp. It’s quite a nice feeling to fall the Liao Dynasty dating back to about 1000 asleep in the wilderness and be woken up in years ago. Guyuan County is the location of the morning by the moos of cows. the summer palace of the Liao, Jin and Yuan The Five Flowers Meadow dynasties. Beautiful wetlands prairie, winding 15 km south of Guyuan country, the rivers, glittering lakes, meadow of colorful Five Flowers Meadow is nicknamed No.1 flowers, ancient relics, horse-riding, and Meadow in the World, and the Most Beau- bonfire parties make Guyuan Prairie an tiful Sea of Flowers in North China. In ideal destination to relax and escape from summers, flowers of all colors such as yellow, the summer heat of Beijing.

91 See Tourist Sites before Your Meetings Begin

one, “Even on business, see at least one tour- tools to create an agreement. ist site before you begin meetings” is likely The Chinese are rightfully proud of By Roger Cavazos anathema to the comptroller. However, the a vast number of achievements across any dividends are tremendous. Let me explain a number of disciplines for several millen- little bit. nia. That is an excellent way to earn respect. For most of us, the first stop in China However, never let it intimidate you. Re- will be Beijing. You have to see Tiananmen member, those who sit across from you came Square and the Forbidden City. Ideally, you’ll from that background, but they also bear the also go see the Great Wall. If in Shanghai, weight and pressure to succeed as did those the Bund is the place to see Pudong. What- previous projects. ever city you go to, ask your associates there, You and those across from you thus “What is the most famous site in Mou Mou have some common starting ground, the city? Where are you most proud of in Mou need to succeed. How you choose to apply Mou city?” The locations are likely the same. your particular touches to expand that com- Then go see that place, the “it”. The trick mon ground and get the job done is up to here is to keep the visit to a half day or less, both of you. including drive time. And if for whatever reason you realize Take in the grandeur of “it” and learn at early on that things just won’t work, at least least a little bit about the history, significance there’s a pleasant small talk topic. You can do and if possible, one or two key personalities. as you wish, but I’ve rarely found it helpful And take a cheesy, “I was here” picture. I’ll to burn or even damage a bridge. Pleasant tell you why in a couple of paragraphs. chatter allows the other side to walk away Think about the work, the craftsman- with an impression of you as friendly and ship, the various artisan contributions, the approachable at some later date, if necessary. vision required to bring “it” forth from a pile You may even know of a situation in which of dirt, stones, and hands with banged up conditions changed and you find yourself thumbs and dirty fingernails. Think about dealing with someone you thought you the project management skills required to would never have to see again. assimilate such a broad sweep of rich human Why the cheesy photo? When you take capital resources available. the picture and can talk a little bit about ost every Chi- Now think about when “it” was created. the historical site, the Chinese then realize nese person I Most of the time, “it” was created a very long when you go home; you will be an unofficial have met has time ago. Now imagine how many more ambassador with the cachet of having been tried to teach hands were needed (usually in the thousands) on the ground. They will take it upon them- me something. So many and over what time frame (usually measured selves to educate you to the best of their abil- Mwonderful teachers, such a in generations). And remember, there were ity given the time available to ensure you are poor student. Yet, they con- no tractors, bull dozers, arc welders, etc. Two the best ambassador possible. I’m pretty sure tinue to share their culture hands, imagination, and discipline. Heavy, it’s written in the Chinese Citizen’s book and for that I am extremely triple-serving, extra large dose of discipline somewhere. grateful. in order to ensure the required multiples of So this is how you talk the boss and Thinking about it a hands were all working toward completion. or comptroller into taking a half day educa- little more, there are a few Now imagine trying to get 2.6 billion or tional trip and area orientation. insights I’d like to share that so hands working toward a common goal have usually helped when of a better life. This thought should inspire (Author: from Associate of O&P En- dealing across cultures in respect for those sitting across from you and terprise, LTD Hong Kong. Views are his general and with the Chi- help you see the array of capabilities brought own and not necessarily representative nese in particular: The first to the table. All those capabilities are various of O&P Enterprise.)

92 Pricing in China

f you expect value, you should expect tasting evenings in Shanghai. He runs two to pay. At least it seems that way in evenings at two different price tiers, Evening China. It is common knowledge that A costs 450Rmb per person and Evening B China’s luxury goods market is boom- costs 750Rmb per person. His target market ing, just about every brand considered to be is not the social elite and many of the wines aspirational and alluring is scrambling for a tasted on both nights are the same and none I By Lewis McCarthy piece of the action and market share. Iconic of the vintages or producers are exceptional. names such as Gucci, Prada and Louis Vuit- Even so, he tells me that each month he ton who until recently were found almost finds it difficult to fill the night priced at exclusively in Europe and the US are now 450Rmb and is always over-subscribed at prominent and flourishing even in second- 750Rmb. tier cities here. In Ningbo for instance, Dolce For me, a Westerner, the choice is a no- and Gabbana and Mont Blanc operate large brainer. When the majority of the variables stores. While the city is wealthy, known are the same e.g. venue, wines and teacher. for its entrepreneurs and lifestyle as part of The evening at 450Rmb seems the one in the prosperous region of Zhejiang, it isn’t which I would receive most value for money, even a provincial capital – Hangzhou takes it even appears a bargain in comparison to that mantle. In fact, Ningbo would be hard the 750Rmb evening. Who would choose pressed to even claim second place in the that one you might ask? area, tussling with its equally affluent sibling Evidently, it appears Chinese consum- Wenzhou. ers would. Here, the items that are priced The fact remains however that in the higher simply seem to offer a better return city there is an exceedingly large market on investment: perhaps the more expensive for high priced and ‘high value’ goods. This evening would leave them feeling more hap- filters through to what are deemed to be py (drunk?), the Prada bag might represent a ‘less’ aspirational brands also such as Nike, status of success over others or it could sim- Zara and Jack Jones, for example. Influenced ply be an affirmative reaction to traditionally by the inexorable rise of the luxury brands poor quality cheap Chinese products. pricing trends generally are now much There is a clear underlying truth to higher here than elsewhere internationally. this last point. Taobao.com and 360buy. Breathtaking prices are now being imposed com, two of China’s leading B2C and C2C and achieved in cities with average incomes e-commerce websites (much like ebay.com price actually places a higher significantly below that of their Western or Amazon.com) operate in a system where trust in the brand. It is not counterparts or even other expensive high consumers pay after they have received and simply a marketing tech- living Asian cities e.g. Seoul, Tokyo. Why checked the goods. This is far less likely in nique to make them appear are goods so expensive? the West (notwithstanding money back more aspirational as many of Population is certainly a key contrib- trials). It would be difficult convincing busi- those who seek to buy these uting factor. Provincial capitals could have nesses in the UK to give you their product luxury goods prefer to do ten times the population of a large Western before purchasing it. This reflects a wider so in Hong Kong, after all, counterpart, so it is unsurprising that they suspicion in China of reliability, consumers they are cheaper there. are considered important retail targets for simply do not trust that cheap products will these companies. Furthermore, it is pre- not break or that they won’t feel ripped off. (Author: Studying sumed (and demonstrated) that these cities Of course, everywhere there is the notion Mandarin part-time in are home to exceptionally wealthy and suc- that low cost tends to equal low quality ‘you Shanghai, he is a recent cessful individuals – the target audience and get what you pay for’ but for the most part graduate of BA (Hons) main consumers of these brands. there is the expectation of a minimum stan- Management with Chi- There is another possible reason how- dard. nese Studies from the ever. It seems in China that pricing and In China, there is no such expectation University of Nottingham. perceived value have a far stronger positive and the lack of one may explain why Zara Involved in various UK- correlation than they do in the West. By way and others price highly when entering a Chinese relationship or- of example, I have a friend who offers wine market with a low average income: a higher ganisations.)

93 ulture

C found around 500 BC. The Yellow belief system is that certain foods Emperor’s Classic of Internal Medi- have a “hot” or heat inducing quality cine, also known as the Huangdi Nei- while others have a “cold” or chill- jing (黄帝内经), which was written ing effect on one’s body, organs or around 300 BC, was most important “energy” levels. The idea being that in forming the basis of Chinese food one’s imbalance of natural “heat” and therapy. It classified food by four “cold” in a body can cause disease food groups, five tastes and by their or be more conducive towards sick- natures and characteristics. for ness. Although, in this belief system, it does not necessarily mean one’s Philosophy about food internal “heat” or “cold” balance is The ideas of yin and yang are directly related to being physically Health used in the sphere of food and cook- hot (to the point of sweating) or cold ing. Yang foods are believed to in- (feeling chilly from cold weather). As crease the body’s heat (“hot”), while an example, if one had a cold, or felt Yin foods are believed to decrease the hinese food therapy (食疗 Shí he was about to get a cold, he would body’s heat (“cold”). As a generaliza- liáo) is a practice in the belief not want to eat any “cold” foods such tion, Yang foods tend to be dense in of healing through the use as a lemon, melon or cucumber. If food energy, especially energy from of natural foods instead of one had a so called “hot”disease, like fat, while Yin foods tend to have high medications.C Chinese food or nutrition Eczema, then he would not want to water content. The Chinese ideal is therapy, is a modality of traditional Chi- eat “hot” foods such as garlic, onions, to eat both types of food to keep the nese medicine, as opposed to evidence- or chocolate lest the “hot” disease is body in balance. A neutral person is based medicine. worsened. generally healthy and will have strong Chinese food therapy dates General ideas reactions to these effects only after back as early as 2000 BC. However, overconsumption of certain kind of One of the central ideas in this proper documentation was only food. A yang type person usually can eat all yin type food with no ill Chinese Rough Related symptoms/effects Examples Cures effect, but may easily get a nose name translation bleed with small amount of yang 燥火 dry fire causes dryness of skin, chili pepper, deep fried any yin or type food. A yin type person is (yang) chapped lips, nose bleed etc. food, beef jerky, lychee cooling food usually very unhealthy and is re- chrysanthemum, active to either yin or yang food. causes mouth sore, urinary wet heat mango, pineapple, sugar cane, Imperata 湿热 burning etc. probably due Boosting or nourishing type of (yang) cherry arundinacea, to the acidity or alkalinity food is needed to bring a yin per- Prunella vulgaris son back to health. watermelon, cantelope, causes dizziness, weakness, Chinese people pay much cold cooling honeydew and certain any boosting or 寒 pale or green face (low (yin) kinds of melon-type fruits dry fire food attention to the body’s reaction to oxygen level in blood) etc. or vegetables, green tea food. Food items are classified ac- cordingly, and diet is adjusted based cause indigestion, all fibrous food, e.g. 滞 blocking haw fruit, malt stomach gas etc. yam, chestnuts on the body’s conditions. In effect, many Chinese people practice food causes pus or swelling duck, goose, bamboo abstinence at 毒 poisoning in wound, outbreak of therapy in day to day situations. shoot, all shellfish outbreak acnes, hemorrhoid etc. causes gastric upset, runny all greasy food, abstinence at 油 greasy stool, outbreak of acnes etc. e.g. bacon etc. outbreak Tips: mild yin type that counteract beer, lettuce, sugar cane, clear not needed if 清 the dry fire type. Also listed Imperata arundinacea, For girls who cooling not overused as yin when overused. American ginseng. suffer dysmenor- apple, pear, fig, rhea, try to drink winter melon, longan, hot water added 滋润 nourishing moisturizing, soothing not needed dioscorea opposita, brown sugar and lotus seed, lily bulb etc. powder, and eat red replenishes blood and dates during the pe- 补血 Mutton, snake, wild not needed if boosting Qi. Also listed as dry 益气 games, beef, red dates not overused riod time. It’s Chinese fire when overused. way to keep body warm 行血 red wine, Korean vigorating circulating blood and Qi not needed and ease the pain. 活气 ginseng

94 yǎng shēng yàn yŭ 生谚语 Chinese Proverbs of Health Life

冬吃萝卜夏吃姜，不用医生开早起一杯水，清肠又润胃。若要小儿安，常带三分饥与寒。药方。 zǎo qǐ yī bēi shuǐ, qīng cháng ruò yào xiǎo ér ān, cháng dài yòu rùn wèi. sān fēn jī yŭ hán. dōng chī luó bo xià chī jiāng, bù Drink a glass of water when you If you want a baby healthy, keep it yòng yī shēng kāi yào fāng. wake up in the morning, which will clear a little bit hungry and cold. Eating turnip in winter and ginger your intestine and nourish your stomach. in summer keeps doctors away. 春不减衣，秋不加帽。饭前一碗汤，苗条又健康。一日一枣，长生不老。 chūn bù jiān yī, qiū bù jiā mào. fàn qián yī wǎn tāng , miáo tiáo Do not reduce clothing in spring, yí rì yí zǎo, cháng shēng bù lǎo. yòu jiàn kāng. and do not add hat in autumn. A date a day keeps you long life Drinking a bowl of soup before and young. you eat, that will keep you slim and 想要身体好，睡前烫烫脚。 healthy. 大蒜是个宝，常吃身体好。 xiǎng yào shēn tǐ hǎo, shuì qián 早起早睡，精神百倍。 tàng tàng jiǎo. dà suàn shì gè bǎo, cháng chī If you want to be healthy, soak shēn tǐ hǎo. zǎo qǐ zǎo shuì, jīng shén bǎi your foot in hot water before you sleep. Garlic is a treasure; eating it often bèi. keeps you in health. Get up early in the morning and 按揉足三里，胜吃老母鸡。 go to bed early at night. You’ll be ener- 多食一点醋，不用上药铺。 getic all day. àn róu zú sān lǐ, shèng chī lǎo mŭ jī. duō shí yì diǎn cù, bù yòng 饭前洗手，饭后漱口。 Massaging zusanli will let you shàng yào pù. have better nutrition even than drink- Drinking a little more vinegar fàn qián xǐ shǒu, fàn hòu sù kǒu. ing old hen soup. ZuSan keeps you away from pharmacy. Rinse your hands before eat, and Li, is an acupuncture rinse your mouth afterwards. point on the side of leg, 多吃果蔬少吃肉，多喝绿茶 which has the function 多吃豆。饭后百步走，活到九十九。 of strengthening your body. Chicken soup is duō chī guǒ shū shǎo chī ròu, fàn hòu bǎi bù zǒu, huó dào jiǔ very nutritious in Chi- duō hē lǜ chá duō chī dòu. shí jiǔ. nese eyes, and old hen Eat more fruits and vegetable, and Taking a walk for a hundred steps soup is better, and giv- less meat; Drink more green tea and eat after meals makes you live as long as ing a massage to your zusanli is even more soy beans. ninty-nine years. better.